Need-to-Know Tax Rules for Business Travelers
Wolters Kluwer Examines Tax Issues for Road Warriors
(NEW YORK, NY, March 2019) — Business travelers who regularly rack up frequent flier miles or hit the road to work across state lines need to prepare a bit more when it’s time to file their tax returns. Although calls have been made to simplify the tax preparation process for those who work in multiple locations, travelers need to be aware of the local income tax laws and required forms to file in places where they regularly conduct business.
“Business travelers should be aware of the local tax compliance measures where they work, which may include tax breaks they may not be aware exist,” said Tim Bjur, JD and Senior State Tax Analyst for Wolters Kluwer Tax & Accounting. “Even if you’re only working in one place for a short period of time, specific state income tax rules may still apply.”
Working in Different States
41 states and the District of Columbia impose a personal income tax on wages, and each has different rules regarding when income tax is imposed on nonresidents. Some state tax return filing thresholds are based on the number of days worked in the state while others are based on the wages earned in the state. For example:
- California: Requires nonresidents to file a return if income exceeds filing thresholds
- Maine: Requires nonresidents to file a return if they have enough income from state sources to trigger a state income tax liability, but there are exceptions based on the number of days spent in the state, the type of work, and the amount earned
- Massachusetts: Requires nonresidents to file a return if income from state sources exceeds $8,000 or exceeds their personal exemption multiplied by the ratio of their Massachusetts income to their total income
- New York: Requires nonresidents to file a return if income from state sources and state AGI is more than the standard deduction
Additional Business Travel Tax Facts
- Most states require residents to file income tax returns reporting all their income, regardless of whether they earned the income in that state or another state
- Someone working in multiple states would then also file nonresident income tax returns in each state where they met the income tax filing thresholds
- Helping to avoid double taxation, most states allow residents to take a tax credit on their tax return for income taxes they paid to other states
Some states also have reciprocity agreements allowing individuals to work in neighboring states without owing income taxes to the nonresident state. Overall, more than one-third of states have reciprocity agreements with one or more other states, including:
- Illinois: Residents of Iowa, Kentucky, Michigan or Wisconsin who work in Illinois do not have to pay Illinois income taxes on their wages
- Ohio: Residents of Indiana, Kentucky, Michigan, Pennsylvania or West Virginia who work in Ohio do not have to pay Ohio income taxes on their wages
- Pennsylvania: Residents of Indiana, Maryland, New Jersey, Ohio, Virginia or West Virginia who work in Pennsylvania do not have to pay Pennsylvania income taxes on their wages
“Typically, reciprocity agreements are made with neighboring states that share borders — so they don’t apply for those working on opposite sides of the country,” Bjur added.
An exception is the District of Columbia, which does not require residents of any state to pay District of Columbia income taxes on their wages, unless they lived in the District of Columbia for at least 183 days during the year.
Most states also have special rules exempting members of the military and their families from having to file multiple state tax returns.
No Tax Reciprocity for New York City-area
Conspicuously absent from the states providing reciprocity to one another are New York, Connecticut, and New Jersey. As a result, workers who live in one of these states and work in another must file nonresident income tax returns if they meet the filing thresholds. They can, however, take a tax credit for taxes paid to the other state.
Impact for 2019 Filing Season
Without federal tax laws in place that apply to business travelers, employees and employers need to make sure they’re following the various rules and regulations of all states where work is done. In addition to employment income, other reasons a taxpayer may need to file a nonresident state income tax return include receiving income from:
- A share of a partnership, LLC or S corporation based in another state
- A trade or business in another state, such as working as a consultant or providing repair services
- Rental property in another state
- The sale of real estate in another state
- Lottery or other gambling winnings from another state