Need-to-Know Tax Rules for Business Travelers

2020 Whole Ball Of Tax

Wolters Kluwer Examines Tax Issues for Road Warriors

(NEW YORK, NY, February 2020) — Business travelers who regularly work in other states need to prepare a bit more for the tax filing season. They shouldn't wait until the last minute to understand state and local income tax laws and filing requirements in places where they perform services or conduct business.

41 states and the District of Columbia impose a personal income tax on wages. Each state has different rules on when nonresidents are subject to income tax liability. New Hampshire and Tennessee tax only interest and dividend income.

In addition to employment income, other reasons a taxpayer may need to file a nonresident state income tax return include receiving income from:

  • a partnership, LLC or S corporation based in another state
  • a trade or business in another state, like consulting or repair services
  • rental property in another state
  • the sale of real estate in another state
  • lottery or other gambling winnings from another state

How Do States Tax Nonresident Wages?

27 states require the filing of an income tax return if a nonresident’s income from state sources for the tax year exceeds:

  • a specific filing threshold;
  • the nonresident’s standard deduction; or
  • the nonresident’s personal exemption.

  • Arizona
  • Alabama
  • California
  • Connecticut
  • Hawaii
  • Georgia
  • Idaho
  • Illinois
  • Indiana
  • Iowa
  • Kentucky
  • Massachusetts
  • Maine
  • Minnesota
  • Montana
  • Missouri
  • Nebraska
  • New Jersey
  • New York
  • North Carolina
  • Oregon
  • Oklahoma
  • Pennsylvania
  • Vermont
  • Virginia
  • West Virginia
  • Wisconsin

Many of these states base the filing threshold on a nonresident’s adjusted gross income and filing status.

In Maine, nonresidents do not need to file an income tax return if they:

  • spend 12 days or less in the state; and
  • make $3,000 or less in income from Maine sources.

The 12-day threshold does not include up to 24 days performing certain personal services, like training and site inspections.

14 states have return filing requirements for nonresidents who receive taxable income from state sources, regardless of income level.

  • Arkansas
  • Colorado
  • Delaware
  • Kansas
  • Louisiana
  • Maryland
  • Michigan
  • Mississippi
  • New Mexico
  • North Dakota
  • Ohio
  • Rhode Island
  • South Carolina
  • Utah

Do States Offer Credits for Taxes Paid to Another State?

To avoid double taxation, all states allow residents to take a tax credit on their tax return for income taxes they paid to other states.

Do States Offer Other Relief?

Reciprocal state agreements allow individuals to work in another state without having to file a nonresident income return. The agreements also relieve employers of their withholding obligations. They are typically made between neighboring states that share borders.

Reciprocal agreements exist between:

  • Arizona, California, Indiana, Oregon, and Virginia;
  • The District of Columbia, Maryland, and Virginia;
  • Illinois, Iowa, Kentucky, Michigan, and Wisconsin;
  • Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin;
  • Iowa and Illinois;
  • Kentucky, Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin;
  • Maryland, the District of Columbia, Pennsylvania, Virginia, and West Virginia;
  • Michigan, Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin;
  • Minnesota, Michigan, and North Dakota;
  • Montana and North Dakota;
  • New Jersey and Pennsylvania;
  • North Dakota, Minnesota, and Montana;
  • Ohio, Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia;
  • Pennsylvania, Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia;
  • Virginia, the District of Columbia, Kentucky, Maryland, Pennsylvania, and West Virginia;
  • West Virginia, Kentucky, Maryland, Ohio, Pennsylvania, and Virginia; and
  • Wisconsin, Illinois, Indiana, Kentucky, and Michigan

Conspicuously absent from the states providing one another reciprocity 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.

About Wolters Kluwer Tax & Accounting

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