Employee travel is a part of doing business. However, monitoring the specific travel details of employees is becoming more challenging than trying to cash in frequent flyer miles. Payroll teams need to navigate through the tax withholding requirements state-by-state. More states are requiring employees to pay local taxes for the time worked in their states and some states also require employers to withhold income tax on employees who travel outside of their resident state for temporary work periods.
In fact, some states—such as Ohio, Michigan, Indiana and North Carolina—require employees to withhold, even if they were only there for one day. Other states provide for a threshold before requiring tax withholding for nonresident employees.
New York requires employers to withhold if the employee is in the state for more than 14 days in one calendar year and wages earned exceed personal exemptions. In Georgia, employers must withhold if the nonresident employee is in the state for more than 23 days in a calendar year or if 5% or more of total income is attributable to Georgia. In Maine, employers must withhold if the nonresident employee works in the state for more than 12 days in a calendar year.
The only clarity for Payroll teams are that state requirements are disparate, inconsistent and varied across the board. How do you manage this “road warrior tax” compliance nightmare?
- Internal recordkeeping. One option is to assign members of your payroll team to manage recordkeeping and track state regulations. It’s no small task however, with a considerable risk of human error that can lead to potential noncompliance penalties, not to mention it prevents your team back from managing more strategic work.
- Establish an internal process. Companies can establish a process that should be followed any time it does business in a new state and identifies who should be involved and notified. This can be labor-intensive and requires additional processes to track employee travel and keep up with changes to state regulations.
- Third party tools. More companies are turning to third party providers and automated tools to ensure proper tax handling. For example, CIC Plus’s Alternate Travel Withholding Form is part of a suite on online W-4 services that helps employers with large mobile workforces capture the necessary travel information and automatically provide the right tax forms for employees to complete.
Managing employee tax requirements doesn’t have to be complicated. Make sure you put the proper procedures in place to handle your employee travel to avoid potentially costly audits and penalties. You’ll then have time to figure out how to use all those frequent flyer miles.