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Tennessee Statewide Payroll Conference August 15, 2014 Withholding and Unemployment Requirements for a Multi-State Employee Presented by J. Bryan Ray LBMC.

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Presentation on theme: "Tennessee Statewide Payroll Conference August 15, 2014 Withholding and Unemployment Requirements for a Multi-State Employee Presented by J. Bryan Ray LBMC."— Presentation transcript:

1 Tennessee Statewide Payroll Conference August 15, 2014 Withholding and Unemployment Requirements for a Multi-State Employee Presented by J. Bryan Ray LBMC Employment Partners, LLC MORE THAN YOU EXPECT... EVERYTHING YOU NEED

2 Withholding and Unemployment Requirements for a Multi- State Employee Withholding and Unemployment Requirements for a Multi- State Employee August 15, 2014 Presentation Outline I. Introduction II. State Income Tax Withholding Requirements and Issues A. Which State Must you Withhold? B. Employees Working in Multiple States / Temporary Assignment C. Reciprocity D. Electronic Payments and Filing E. State Withholding Year-End Processing Matters III. Local Withholding Tax Discussion and Issues IV. State Unemployment Insurance Requirements and Issues A. SUI / Taxable Wages / Contribution Rates B. Employees Working in More than One State C. Outstanding SUI Loan Balances D. Employment Tax Acquisition Opportunities V.Questions, Answers, and Discussion

3 State Income Tax Withholding Requirements and Issues Which State Must you Withhold? 1. Basic Rule of Thumb – The State in which Services Are Performed. Exception – DC only taxes residents. 1. Nexus = Business Connection (An office, store, factory, or simply entering a state to make a sale or perform a service call) 2. If employer has nexus, the employer is subject to the withholding rules of that state. This nexus is key in determining withholding requirement based on employee’s state of residence. 3. Other Important Rules to Consider  Determination of Resident State  Is a Reciprocity Agreement in place between states?  Resident / nonresident taxation policies

4 Work Site Withholding Exceptions De minimis time in state working or limited dollars earned (sourced) from state De minimis time in state working or limited dollars earned (sourced) from state States that require withholding on first dollar and first day or portion thereof: AL, AR, CO, DE, IA, IL, IN, KY, KS, LA, MD, MA, MI, MN, MO, MS, MT, NE, NC, ND, OH, PA and VT States that require withholding on first dollar and first day or portion thereof: AL, AR, CO, DE, IA, IL, IN, KY, KS, LA, MD, MA, MI, MN, MO, MS, MT, NE, NC, ND, OH, PA and VT ID, NY, OK, OR, SC and WI have limits on dollars earned; AZ, CT, NY, GA, HI, ME and NM have various day limits. ID, NY, OK, OR, SC and WI have limits on dollars earned; AZ, CT, NY, GA, HI, ME and NM have various day limits. Check the state’s lowest personal exemption (PE) amount for state tax return, or look to where the state starts its withholding tables Check the state’s lowest personal exemption (PE) amount for state tax return, or look to where the state starts its withholding tables

5 State Income Tax Withholding Requirements and Issues RESIDENCY DEFINED Most states have a two-pronged definition of residency, that states someone will be a resident of a state by either – Being domiciled in the State, or Being domiciled in the State, or Spending more than a certain number of days in the State. Spending more than a certain number of days in the State. The term “domicile” usually means the place where the individual has a true, fixed permanent home and principal establishment. “Domicile” usually means the place the individual intends to return. IMPORTANT The definition of resident for income tax withholding varies by state.

6 State Income Tax Withholding Requirements and Issues RECIPROCITY 1. An agreement between two states that allows an employer to withhold only for the state of residence, as opposed to the state in which services are performed. 2. Please see specific state documentation and be mindful of specific state forms. 3. Primary Reciprocity Agreement States  DC - Maryland, Virginia  Illinois - Iowa, Kentucky, Michigan, Wisconsin  Indiana - Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin  Iowa – Illinois  Kentucky – Illinois, Indiana, Michigan, Ohio, W. Virginia, Wisconsin  Maryland – DC, Pennsylvania, Virginia, and W. Virginia  Michigan – Illinois, Indiana, Kentucky, Minnesota,, Ohio, Wisconsin  Minnesota – Michigan and North Dakota  Montana – North Dakota  New Jersey – Pennsylvania  North Dakota – Minnesota and Montana  Ohio – Indiana, Kentucky, Michigan, Pennsylania, and West Virginia  Pennsylvania - Indiana, Maryland, New Jersey, Ohio, Virginia, and WV  Virginia – West Virginia, DC, Kentucky, and Maryland  West Virginia – Kentucky, Maryland, Ohio, Pennsylvania, Virginia  Wisconsin – Illinois, Indiana, Kentucky, and Michigan

7 State Income Tax Withholding Requirements and Issues RECIPROCITY EXAMPLE Employee lives in West Virginia. Employee performs Services in Ohio, Pennsylvania, and West Virginia. Withhold West Virginia because West Virginia has a Reciprocity Agreement with both Ohio and Pennsylvania. Withhold West Virginia because West Virginia has a Reciprocity Agreement with both Ohio and Pennsylvania. Make sure employee completes and submits to employer the proper paperwork that declares non- residence in Ohio and Pennsylvania. Make sure employee completes and submits to employer the proper paperwork that declares non- residence in Ohio and Pennsylvania.

8 State Income Tax Withholding Requirements and Issues RESIDENT / NON-RESIDENT TAXATION POLICIES The determination of Residency is very important. The determination of Residency is very important. IMPORTANT – The state in which services are performed will almost always require withholding from non-residents who come into the state to work. IMPORTANT – The state in which services are performed will almost always require withholding from non-residents who come into the state to work. However, some states have “triggers” (number of days worked) in regard to withholding for non-resident work in their states. For example, the Arizona trigger is 60 days. However, some states have “triggers” (number of days worked) in regard to withholding for non-resident work in their states. For example, the Arizona trigger is 60 days. If an employer has nexus in the employee’s state of residence, then the employer may be required to withhold the state’s income tax (even if there is no work there) – in addition to the state in which the employer is working. If an employer has nexus in the employee’s state of residence, then the employer may be required to withhold the state’s income tax (even if there is no work there) – in addition to the state in which the employer is working. If an employee does not have nexus, then employee likely not required to withhold based on employee residence. If an employee does not have nexus, then employee likely not required to withhold based on employee residence.

9 State Income Tax Withholding Requirements and Issues Resident / Non-Resident Taxation with RECIPROCITY Withholding EXAMPLE Employee performs Services in Ohio and Pennsylvania. Employee lives in West Virginia. Employer is not required to withhold any state income tax. Employer is not required to withhold any state income tax. Employee does not owe tax to Ohio or Pennsylvania due to the reciprocal agreement with the West Virginia home state. Employee does not owe tax to Ohio or Pennsylvania due to the reciprocal agreement with the West Virginia home state. Employee will owe tax to home state West Virginia, but the employer is not required to withhold that tax because the employer does not have nexus in that state. Employee will owe tax to home state West Virginia, but the employer is not required to withhold that tax because the employer does not have nexus in that state.

10 State Income Tax Withholding Requirements and Issues Electronic Filing and Payments 1. Opportunity- More and more states and locals are enacting laws or regulations that allow and / or require employers to use electronic funds transfer for depositing withholding tax. Most states require electronic payment, if deposits reach a certain threshold. 2. Advantages – Less risk of misapplied tax payments than paper checks. Less risk of misapplied tax payments than paper checks. Increased speed of Payroll and Payroll Tax Operations. Increased speed of Payroll and Payroll Tax Operations. Compliance with ever-changing regulations. Compliance with ever-changing regulations. 3. Payment Methods – ACH Debit, ACH Credit, Internet filing. 4. Opportunity Select payment method which best suits your environment. Select payment method which best suits your environment. Contact bank for ACH capabilities. Contact bank for ACH capabilities. Complete enrollment process; follow-up as needed. Complete enrollment process; follow-up as needed. Document accomplishment. Document accomplishment.

11 State Income Tax Withholding Requirements and Issues State Withholding Year-End Processing Matters 1. Complete Balancing of all State Forms W-2 to State Withholding Returns and Payments during the Year. 2. State Annual Reconciliation Forms -  Forms due January 31 – CA, DC, KY, MS, OH, (IT-941), PA, WI  Form due March 15 – NE  Forms due February 28 - All other state annual reconciliations. 3. States that do not want W-2s – CA, IL, IA, NY, OK, OR 4. State W-2 Electronic / Magnetic Media Filing Requirements

12 Local Withholding Tax Discussion and Issues 1. States with Local Taxation – PA, OH, KY, IN, AL, MD, MO, MI, NY, CA, CO, DE, IL, OR, WVMore to come 2. Pennsylvania – Earned Income Tax, School District Tax, Local Services Tax. Pennsylvania Act 32. Residence versus Work Location comparison. 3. Ohio – Withholding Tax, Ohio School District Tax 4. Indiana – County Taxes – Residence Takes Priority. 5. Opportunity – How can employers help ensure employees are compliant? Ask employees living and working in above states ; document results.Ask employees living and working in above states ; document results. Include Questioning on New Employee Set-up forms.Include Questioning on New Employee Set-up forms. Contact the local taxing agencies – Ask specific questionsContact the local taxing agencies – Ask specific questions(continued)

13 Local Withholding Tax Discussion and Issues 4. Opportunity – How can employers help ensure employees are compliant with local taxes?  If outsourcing your payroll, verify new employee processing 5. Useful Websites and Resources    Ohio Local Taxes - Ohio Local Tax Finder. Pennsylvania Local Taxes Indiana Local Taxes Pennsylvania Local Taxes Indiana Local Taxes

14 State Unemployment Insurance Requirements and Issues SUI / Taxable Wages / Contribution Rates Each state’s SUTA Wage base must be less than FUTA wage base of $7, Each state’s SUTA Wage base must be less than FUTA wage base of $7, SUTA Wage Bases vary by state and may change annually. SUTA Wage Bases vary by state and may change annually. SUI Wage Transferability – An employees SUI taxable wages for one state may be applied toward the taxable wages of another state, within the same year, as long as the employer is working for the same employer (Louisiana and Minnesota are exceptions). SUI Wage Transferability – An employees SUI taxable wages for one state may be applied toward the taxable wages of another state, within the same year, as long as the employer is working for the same employer (Louisiana and Minnesota are exceptions). Contribution Rates vary by employer, are recomputed each year, and are determined by an employer’s “Experience Rating.” Contribution Rates vary by employer, are recomputed each year, and are determined by an employer’s “Experience Rating.”Continued

15 State Unemployment Insurance Requirements and Issues SUI / Taxable Wages / Contribution Rates (continued) Experience Rating Calculation Methods –. Experience Rating Calculation Methods – Reserve Ratio, Benefit Ratio, Benefit Wage Ratio, Payroll, Stabilization. New Employer Rate New Employer Rate Successor Employers Successor Employers Employee Contributions Employee Contributions AlaskaAlaska New JerseyNew Jersey PennsylvaniaPennsylvania

16 State Unemployment Insurance Requirements and Issues Employees Working in More than One State FOUR DETERMINATION FACTORS 1. Are Services Localized? - If services performed outside the state are merely incidental to services performed inside the state. 2. Does Employee have “Base of Operations?” – A place where the employee reports to or returns from work, has an office, receives instructions from employer, receives mail, or keeps business records. 3. Is there a “place of direction or control?” – An employer’s facility from which it exercises immediate control over the employees’ services (i.e. a Sales Office). 4. What is the “employee’s state of residence” - If none of the above apply and employee performs some work there.

17 State Unemployment Insurance Requirements and Issues Employees Working in More than One State Localization of Services EXAMPLE Performs most services in Wisconsin, directed from Illinois, based in Wisconsin, performs temporary service in Indiana. Report unemployment to Wisconsin as most services are performed in WI and services in IN are temporary / incidentalReport unemployment to Wisconsin as most services are performed in WI and services in IN are temporary / incidental Base of Operations EXAMPLE Services directed from Arizona, lives in California, based in Nevada, and performs services in all Three States. Report unemployment to Nevada since services are performed in more than one State and some of the services are performed in NV where the base of operations is located.Report unemployment to Nevada since services are performed in more than one State and some of the services are performed in NV where the base of operations is located.

18 State Unemployment Insurance Requirements and Issues Many States now Have Outstanding Federal Loan Balances In recent years, certain states have been unable to re-pay outstanding Federal loans to fund State Unemployment Insurance Programs. As a result, certain states lost a portion of their Futa credit in 2013 and prior years and employers in these states were subject to higher Form 940 FUTA liability Potential FUTA Credit Reduction States – 2014 Potential FUTA Credit Reduction States – AR, CA, CT, DE, GA, IN, KY, MO, NJ, NY, NC, OH, RI, SC, WI

19 State Unemployment Insurance Requirements and Issues Employment Tax Opportunities at Company Acquisition Apply for new Payroll tax accounts, if needed.Apply for new Payroll tax accounts, if needed. Evaluate and discuss Successor / Predecessor potential including:Evaluate and discuss Successor / Predecessor potential including: Transferring employee Futa and Suta wage bases. Transferring employee Futa and Suta wage bases. Transferring employee Social Security wage bases. Transferring employee Social Security wage bases. Transferring favorable Suta experience rating from acquired company. Transferring favorable Suta experience rating from acquired company. Above items could save your company $$$$$. Above items could save your company $$$$$.

20   QUESTIONS   WAR STORIES   DISCUSSION

21 Thank you very Much Hope you have had a Great Summer!! Bryan Ray Director, Payroll Tax Outsourcing / Consulting Services LBMC Employment Partners


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