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State Payroll Taxes for Employees who work in multiple states

Richard Friedman's Profile

multi state employees payroll tax compliance

Has anyone dealt with the problem of employees who travel and work in multiple states, even in the same pay period. Think - consultants, professional athletes (remember Alex Rodriguez), or even truck drivers. I believe the states claim personal income tax jurisdiction for any work done in the state but practically speaking are not able to for compliance.

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

There is no standard regulation. It is state specific, and some of the laws are a nightmare. I posted a blog on this site May 1, 2012 - Complying with State Tax Requirements for Non-Residents, i.e. Nexus. The magnitude of your problem is relative to the states, and how you interpret the regs.
Good luck.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

There are time reporting systems that are dedicated to this. You should leverage these or if you outsource payroll, use your provider to do this. If you have a local CPA firm, leverage their expertise in this area also. I know professional athletes that use regional CPA firms to address this.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I agree with Patrick.

Some states like Michigan are using strong-arm tactics to declare nexus on unsuspecting foreign (non-MI) companies based on the "cheesiest" of assumptions.

Case in point we had a consultant who worked in NYC. He lived in MI. All work done by him for us was in NYC. Michigan claimed nexus because when we issued the 1099 with the Michigan address they picked it up.

Use a good payroll service and tax advisors that know the states where you have people working. The added cost will save you future dollars in fines.

(Agent, JKS Solutions, Inc.) |

Some time keeping and billing tips. This impacts revenue, payroll, billing, state income tax filings, business tax filings on revenue if you have that to deal with.

Spend the time to get this right. Yes as Regis mentioned, it is indeed a nightmare.

The payroll question is easier to deal with than the revenue and billing issue.

First, get professional help to determine if you have Nexus issues. Know the rules.

Second, set up your accounting system (billing and revenue) by client project. While it may be that a single client project will result in state to state travel by employees, and even worse if your firm is located near multiple state borders, you will need to track the revenue earned in the state where the work is performed for either SALT taxes or State Income Taxes in addition to State payroll withholding for those employees that qualify for that treatment.

Keep in mind that you might have to report accrual revenue and cash basis revenue for various reasons. I just heard your head explode from here.

Data Normalization: A single customer account may have many projects/jobs.

Usually your system will have a location field, or work-performed location, and the field will be reportable, meaning you can add it to your reports and excel downloads.

This will only be useful if the work was done at a single location, right? So now what?

Because you can assign multiple billing projects or revenue projects to your client account, you can set up a project for each location where employees perform work, even if there is only one project. The employees will select the project that applies to the time and location they worked, and your revenue and billing system will categorize the time entry correctly by state or other location taxonomy you choose.

If your payroll system doesn't have the ability to designate withholding based multiple locations, you might need to investigate a little more, as someone mentioned you need this feature. You might be able to get by without it for a short time but for the long term that would be difficult.

There will be a little more work in the billing area, but if your billing system is able to consolidate time entry lines into weekly or monthly billing, multiple locations should not be too difficult to handle.

My experience comes from helping a large consulting firm deal with this same issue. They had not defined the location of revenue and they had not required their team managers to specify the location of the work in the revenue project set up.

Configuration is king where all this is concerned. So when you have nailed down all the requirements, it will be a matter of selecting the proper system configuration and settings and hopefully less of a matter of retraining.

Gaining control over time entry in the field is an uphill battle that you must win. There are dire consequences if you do not.

I hope that your situation is minimal and that you have caught the issue in time before it becomes an extensive problem.

Best.

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