Thursday, May 26, 2016

Multi-State Worker Tax Fairness Act Reintroduced in Congress

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The Multi-State Worker Tax Fairness Act has been reintroduced in the U.S. Congress. This proposed federal legislation would prevent the double taxation of interstate telecommuters by requiring states to use the physical presence test for taxation.

Currently, some states tax nonresident telecommuters when they work from their homes in other states under certain conditions. New York and a few other states use a “convenience of the employer” test. If work could have been performed at the employer’s in-state office, but is performed out-of-state for the convenience of the employee, the employee must pay taxes to the employer’s state.

This can mean telecommuters are subject to double taxation. They are taxed once by their employer’s state because the work could have been performed there, and they are taxed again by their state of residence because the work is actually performed there. It can be difficult for a typical telecommuter to prove the necessity requirement of the “convenience of the employer” test. An employee must prove that they have to work from home and not at the employer’s office in the other state.

Under the physical presence test, in order for a state to tax a worker’s income, the physical presence of the worker is required. The work must be performed in that state. All other states may not tax that income a second time. Any form of the “convenience of the employer” test would be prohibited.

The National Taxpayers Union supports the legislation asserting that it will prevent a potential tax nightmare for millions of telecommuters. The state of New York has already opposed the legislation.

Read more on this legislation in PayState Update. Let us know what you think of the proposed legislation in the comment section below.