State income tax withholding

[Dan Long]

Hello all! I've been pretty quiet around here for the past two years or so since I sold my ST and got an F150, but I still lurk fairly regularly and have contemplating getting another ST pretty soon, as I really miss the old truck. Anyway, I've got a bit of a unique situation with my work and was hoping someone may have some accounting and/or payroll background that can give some advice...



I work for a fairly small company (~20 employees) that has done a lot of growing over the past few years. I was the first person hired other than the owner and our 2 VP's about 4 years ago, so we've obviously undergone some changes as we've grown. The company is essentially based out of the owner's home in Ohio, but I live in Florida, and we have also acquired 2 shops in Indiana, set up a shop in Kentucky, and have an office in Illinois where one of the VP's lives. We work all over the country on various jobs, mostly doing work on public safety communications systems for cities and counties, and the jobs range anywhere from a few days to several months long (working a week or two at a time before going home for a few days), depending on what it entails. Being that i live in Florida and most of our work is in the Mid-West and northern states, it's 100% travel for me, about 300 nights a year spent in hotels.



Now here's the situation... I live in Florida, and we have no state income tax. For the first 3 years or so, no state income was withheld from my checks. Recently, the company changed to a new accounting firm and they said the company had been handling this incorrectly, and that state income tax should be withheld based on where our jobs are. So, in the past few months, I've now had state income tax for Idaho, Illinois, Indiana and New York withheld from my paychecks. I'll surely have work in several other states before the end of the year as well, adding to this list.



Does this make sense? I'm assuming this will then require me to file state income tax returns with every one of these states at the end of the year?

 

[Bo Loo]

My company employs people who travel near 100%, and I've never heard of such a thing. Typicallly, they'll spend 1 week at each location and move on....can you imagine the mess that would create if they had to pay state taxes for every state they happen to visit?



I'd recommend you start by calling your local tax collector and getting their input.

 

[Robert Thomas]

I ran into this in a big way some time back. Taxes were withheld that I should not have to pay. Unfortunately the States already had my money. Although it was the fault of the company for wrong withholdings, they would not refund the funds. The States would not refund the funds. I was stuck with the loss. I found out that it was a lots easier to catch it on my work statement and get it corrected quickly than to get a refund from the State.

 

[Richard L]

Dan and Bo,



It may sound like a paperwork nightmare, but that is exactly what is done....If you earn $1.00 in another state, your company may be required to withhold a portion of that $1.00 as state income taxes.



The company you work for does not have to collect State Income taxes, unless they are registered as a business in that state...which may be the case. Companies often register to do business in other states because they get some tax advantages when they do that.



The company I consulted for was not registered as a business in every states where I worked, but I ended up paying State Income Taxes to about half of them. Most of the states I did work in were short jobs of only about 1-2 weeks long, but I worked in PA for about 6-7 months straight. That was a sizable amount of Income taxes. You are supposed to be able to file a State Income Tax form as a Non-Resident at the end of the year and get ALL the money you paid in taxes refunded.



My company provided me a W2 at the end of the year for each state where I worked, even though I may not have paid any State Income Taxes there (state name is shown on the bottom of each W2)



Since the bulk of my work was done in PA and where I paid the most State Income Tax, I was only interested in getting that money back



I did my own taxes using TurboTax, and downloaded the PA State Income Tax Form, but the way TurboTax worked it was always putting in my total earnings for the Federal Income taxes into the amount earned in PA and kept telling me I owed PA even more money.:angry:



I could never make TurboTax understand that I did not earn all my taxable income in PA.... I eventually gave up and never filed to get my money back from PA. I don't know if it was a glitch in TurboTax, or if I was entering some information incorrectly, but I could not get it to work.



I would recommend that you get in touch with a good tax accountant and let him figure it out, because TurboTax did not appear to be set up to handle Non-Resident State Income Tax Refunds? Plus you will have to buy TurboTax State Tax software for each state that you worked in, and often that may cost more than what your are owed that state.



...Rich

 

[Thomas Rogers]

Dan,



If you have worked "the past few months" on location in 4 different states, then the IRS would *probably* not consider those permanent work locations. But then again, that's kind of arbitrary. It's possible that your employer just doesn't want to deal with the issues and is withholding regardless.



The way state withholding for wage earners that are out-of-state residents is supposed to work is as follows:



If a wage earner lives in state "A" and works in state "B", then they should have state taxes deducted from their paycheck for state "B" and at state "B's" rates. Then, when they file their taxes they file a non-resident form and claim the taxes paid to state B as part of the state "A" return.



As Richard said above, tax programs like TurboTax make this easy.



Ultimately if your employer is being told to withhold the state taxes for all states its employees work, then you have to claim the non-resident taxes for each of those states and on your state return. The fact that your state (FL) doesn't have a state income tax shouldn't have any real bearing. If as a non-resident working in some of those states you end up at the end of the year NOT having owed them taxes, or owing them less than was withheld what SHOULD LIKELY happen is that the amounts get credited on your FL state return and maybe to the point that you get a (bigger) state refund.



Contact a CPA or tax attorney...

 

[Richard L]

TJR,

If a wage earner lives in state "A" and works in state "B", then they should have state taxes deducted from their paycheck for state "B" and at state "B's" rates. Then, when they file their taxes they file a non-resident form and claim the taxes paid to state B as part of the state "A" return.



As Richard said above, tax programs like TurboTax make this easy.

It's not that easy, and it does not work that way. You cannot file for a return in the state you live in when that state does not have a state income tax as in my case Texas, and Dan's case Florida.



You are supposed to be able to get your money back from the states where you paid withholding taxes when you file as a non-resident of that state, however you have to file a state income tax return with each state that withheld income taxes. The problem I had was that TurboTax did not handle this properly because it did not have an option to indicate that you were a non-resident of that state and would take your total taxable income from your Federal 1040 form and transfer that amount to your state income tax form and assumed you were a resident, which then appeared that you earned all your income while a resident in that state and you actually now owed more money???:fire:



TuboTax may have corrected that problem, OR it still may be a bug that they do not account for people who travel and work and have income taxes withheld in other states where they are non-residents.



...Rich

 

[Dan Long]

Thanks for chiming in guys... I had done a few searches about this before, but never came up with very good results. After using the term "non-resident" I've had a bit better results, but I still can't say I'm sure what my refund will consist of as far as getting those state taxes back. It looks like I'll probably be filing 6-10 state returns though, which is going to be a real pain in the arse and expensive... TurboTax does seem to have accounted for Non-Resident returns now according to a few search results, although they further complicate it by only allowing 5 states with their online program,and requiring the CD or download to be purchased for 6 or more states. On top of that though, if you use the CD or download, you can only e-file 3 of the returns, whereas you can e-file all 5 if using the online program. :banghead:



Oh, and like i said before, the thing about all of this that really got to me was that for the past 3.5 years this has never been an issue before, and ultimately resulted in me taking a hit of $200 a month or so from my check, right at the same time as my divorce was finalized, meaning my filing status also changed, costing me almost another $200. That's a new truck payment I just lost!! :angry:

 

[Thomas Rogers]

Yeah, I should have said the it all works great if your state of residence has an income tax.



My other advice to Dan... Change jobs! ;-)

 

[Richard L]

Dan,

Like I said earlier, if we are talking about a significant amount of money being withheld by other states, it would probably be cheaper just pay to have a Tax Accountant deal with it. Like in my case, my company did not withhold state income taxes for some states, but the other states that withheld state income taxes did not amount to enough money to make it worth the trouble trying to get a refund. PA had about 7 months of state taxes withheld and that was a significant chunk of change.



I don't know how much money each of those states withheld taxes from your pay, but it would probably be good to go after a refund from those states that withheld the most. That way, perhaps TurboTax would work for you for the top 5 states owing you a refund? I would not be concerned about E-filing State Income Taxes...Just print the completed forms and mail them.



...Rich

 

[Kevin Palmer]

Due to my travels of 5-days a week, I have let an accountant do my taxes for the entirety of my job.



Last year I worked in my home state only 12 times.



For days I fly out and come home I am not eligible for mileage nor per-deum from the employer. However, under tax law I am entitled to both as I am NOT working in the state I am a resident.



For over-nighters, I get both mileage and per-deum from my employer.



I have built an excel sheet that keeps track of all of my mileage as well as the per-deum amount that the tax lax says I was entitled to. It then does the math based on what I actually got and figures out if I em entitled to an additional write off based on getting less than I was entitled to. It figures out all miles traveled and divides them up into four different totals based on over-nighters, out and back trips, training and office miles.



I then take this information to my accountant and he does the official work.



The excel sheet took me about a month and a half to perfect. It has just over 1200 formulas in the cells and covers an entire year. It also allows for per-deum changes which almost always happen at the beginning of a new fiscal year, (normally September).



This is the first year I have had to pay RITA tax and that is only because I put my nae on a lease. No happy to pay 2.2% of my paycheck to them for the "luxury" of living in there community.

 

[Dan Long]

Richard, that is a good point about only bothering to file in the states if they've withheld a significant amount of money, assuming that's legal? Seeing as how I've lived in Florida my entire life, I've never had to deal with the state tax returns, so i'm not familiar at all with them... if things keep at the pace they're going now though, I'll ultimately wind up paying around $2000 to various states by the end of the year, so I would definitely like to recoup as much of that as possible.



Kevin, that is also a very good idea of creating an Excel sheet to keep track of the per diem differentials... While we get a fair amount, and I typically make a significant profit from it based on what I spend for food and lodging, the amount is considerably less than what I've seen listed as the "allowed" amounts according to the IRS. If one can truly deduct the difference of the two, that would be a very nice liability reduction on my part as well. I've created a number of various Excel spreadsheets to keep track of my debts and savings accounts, and otherwise help manage my money and things for work, so it'd be right up my alley. Thanks for the input!



TJR, while there are definitely a lot of times that I miss sleeping in my own bed at night, or getting to lead a "normal" life, it's just not an option for me at the moment, as I'm making far more than anything immediately available to me in my town, especially when i factor in all of the money i make on the back end from my per diem, my lack of virtually any personal expenses most of the time, and all of the various credit card, hotel and airline points that i accrue from my travels. Maybe one day, but for now, I suppose I'll just have to deal with a bit more paperwork at the end of the year...

 

[Richard L]

Dan,

There is no legal requirement for anyone to file a State Income Tax Return if they are not or have not been a resident of that state. You are a non-resident only filing to get a refund of the taxes withheld by your employer.



I was stationed in the Washington DC area several times while I was in the US Army and non-resident taxes was always a big topic then as it is now. Most people who worked in Washington DC, lived in either Maryland or Virginia. Washington DC had to deal with all the traffic, police and maintain the streets and parks, but could not collect taxes on all the people taking their big Government paychecks back home in MD and VA. They had even talked about putting up toll booths on all the major highways going in an out of Washington to generate some money.



My point is that if one state only withheld $20, it would probably not be worth it to file a State Income Tax return in that state. However if some state withheld $200, then that would probably be worth going after a refund.



Check with a tax accountant...I think you might be surprised to know that they don't charge all that much, and you might even get a quote for filing each States Income Tax returns and they could probably tell you which states would not be worth trying to get a refund.



....Rich

 

[Kevin Palmer]

Dan,

If you want a copy of what I built you are welcome to it.



It may not suit your specific needs perfectly, but it is likely to steer you in a good direction.



Let me know...

 

[Bill V]

I definitely don't know the details, but I know that when pro athletes compete in another state than where they reside--regardless of whether it's their employing team's home state or not--they must pay taxes to that state. That is, if a player who lives in Florida is playing for the Minnesota Vikings, and they play away games in eight different states, the player needs to pay income taxes in not only Minnesota, but each of the other eight states. I don't know if they pay taxes on a full sixteenth of their income to those other states, or if the games are considered only part of their employment, in addition to all the practices, appearances, etc., that occur in Minnesota as part of their contract--but I've seen multiple reports indicating that each state gets their cut from each player.



If your situation is somewhat similar--not only would I think that it was correct for your employer to collect withholding from you for each state, but I would also think that a certain amount of income tax is due to each state you worked in, even if you live in no-income-tax Florida...

 

[Richard L]

Bill V,

Paying State taxes in states where you work, but do not live is really not the issue since it happens in a lot of businesses...In the case of professional athletes, they are paid by teams that are a franchise of some governing body like the NFL, NBA, MLB, etc. As a franchise players they must pay state taxes where ever the game is played, but can file a non-resident state tax return in the states where they paid taxes, but are non-residents and they should get their money back.



Most people who travel and work in other states and have had state income taxes withheld, do not like this, but their employers are the ones who get various financial tax breaks by withholding state taxes from your salary, even though, as a non-resident you are entitled to a refund.



Simply put, the states know that they can collect and use the money until a refund is demanded, and that many of these non-residents will not file for a refund...and they can keep the extra money. I'm sure a politician would state it differently, and perhaps put a better sounding spin on it. :throwup:



...Rich

 

[Bill V]

As a franchise players they must pay state taxes where ever the game is played, but can file a non-resident state tax return in the states where they paid taxes, but are non-residents and they should get their money back.

From the way the reports I saw put it, I don't think what you said is correct. Several reports from both the teams and the state regarding the new stadium construction cited that income tax as state revenue which could be directed toward the construction. I've also seen multiple reports after recent Super Bowls where the hosting state made their cut on the Super Bowl paychecks of every participating player.

 

[Bill V]

An article about it. Makes it sound like it's something which may be specific to pro athletes...

 

[Richard L]

Bill V,

Again, I agree that state taxes are being collected but if someone is not a resident of that state, they are entitled to a refund of the income taxes they paid to that state.

Several reports from both the teams and the state regarding the new stadium construction cited that income tax as state revenue which could be directed toward the construction. I've also seen multiple reports after recent Super Bowls where the hosting state made their cut on the Super Bowl paychecks of every participating player.

I would actually have to see that quote from the teams or the state officials since that is not the way state income taxes work.... Yes, the state makes money from the income made at the stadium selling tickets and concessions and even income taxes from the employees that work there. They even may collect takes from the players paychecks, but if the player is not a Resident of that state, they can file a non-resident state tax return and get the taxes they paid refunded. That statement sounds more like political pandering to the local taxpayers to justify the cost of the stadium.



As for tickets to any game, including the Superbowl, there is a fairly hefty tax anyway.



...Rich

 

[Bill V]

They even may collect takes from the players paychecks, but if the player is not a Resident of that state, they can file a non-resident state tax return and get the taxes they paid refunded.

Like I said, not according to the article I linked above, and multiple other reports I've heard in the past. But that article makes it sound like it's something specific to athletes and employees of sports teams/leagues.

 

[Thomas Rogers]

State income tax for many of today's workers, especially the non-traditional worker is just too darn out-dated.



Think of knowledge workers and people that telecommute. Think of sales people.



Is the job of a person who goes on sales calls out of state really that different than a pro-athlete that plays an away game, or a musician on tour?



Seems to me, no.



Too many states have their hands out.



I was a consultant and I worked in a lot of states. Our company was cool about it and they assumed some risk I suppose. They had a policy if that you worked on-site in another state for less than a week then they considered it a temporary work location and you didn't pay taxes there. Again, that was mid-90s, so some stuff has changed.



I frequently spend a days traveling all over the country for sales meetings at my current job, probably constantly bouncing between a dozen or so states. I only pay PA tax. Those sales calls don't account for work locations, mostly because I am not providing a "service" while working there.



It all is kind of sucky.



We need to change our taxes in this country.



Again, this would be infinitely easier for the Dan and others like him if it were the more traditional "bordertown" example where you live in one state, work in another, both states have income taxes, and the states have a recipriocal arrangement that makes tax reporting and payment easy...and that's really the only example that I feel our current state tax situation handles well...and that's just not the world many live in anymore.



Argh!