House Passes Bill Establishing National Standard for State Income Taxes on Nonresident Employees

June 13, 2012

The U.S. House of Representatives passed the AICPA-backed Mobile Workforce State Income Tax Simplification Act of 2011, H.R. 1864, by voice vote on May 15.  The bill would establish a uniform national standard governing the withholding of state income taxes for nonresident employees.

“The House's passage of H.R. 1864 is a critical step toward balancing and streamlining onerous recordkeeping and reporting requirements for workers who are required to file nonresident personal income tax returns because they work temporarily outside their home state,” said AICPA President and CEO Barry C. Melancon, CPA, CGMA.

Many state CPA societies sent letters to their representatives in the House urging them to vote for H.R. 1864.  “The grassroots lobbying efforts by the state societies aided our endeavors tremendously in getting this bill passed by the House,” said Melancon.

“The House passage of the Mobile Workforce bill is a great first step,” said Dana Rubenstein, CEO of the Delaware Society of CPAs.  “This bill will help our members who work in public practice or in companies as they manage their staff working across state lines.  For a state like Delaware, which is near several major metropolitan areas in different states, this legislation will save time and expense for our members.”

The bill would establish a uniform requirement that nonresidents would have to work in a state for more than thirty days before becoming subject to out-of-state income taxes.  The change would make state income tax withholding easier to administer and would help ensure that states and local jurisdictions get the taxes they are owed.

Earlier this year, the AICPA was a signatory to a Mobile Workforce Coalition letter sent to House Speaker John Boehner and Minority Leader Nancy Pelosi urging that H.R. 1864 be considered by the House, citing the strong bipartisan support for the bill.  The Mobile Workforce Coalition, of which the AICPA is a member, represents more than 495 businesses and organizations that support the bill.

U.S. Representatives Howard Coble, a Republican from North Carolina, and Hank Johnson, a Democrat from Georgia, sponsored the bill and spearheaded the measure’s passage.

H.R. 1864 includes several key components designed to alleviate the burden the current state income tax withholding system places on traveling employees and their employers.  For the vast majority of states, the legislation contains minimal or no revenue impact. 

H.R. 1864 would:

  • Provide for a uniform and easily administered law for traveling employees and their employers, establishing a national threshold of thirty days. 
  • Ensure the correct amount of tax is withheld and paid to the states without the undue burden the current system places on employees and employers. 
  • Simplify the patchwork of existing inconsistent and confusing state rules as well as reduce administrative costs to states and lessen compliance burdens on consumers. 
  • Establish provisions for the use of time and attendance systems that would provide protection for honest mistakes by the employer and a reduction in audit risk. 
  • Align the many different tax requirements of forty-one states regarding the withholding for income tax of nonresidents by setting a national threshold of thirty days or more before liability to withhold and pay taxes. 
  • Provide an opportunity for greater compliance because of the certainty and consistency of minimum withholding rules across all states, thus encouraging the free movement of personnel within the marketplace.

The legislation now moves to the Senate where the AICPA is working with U.S. Senators to introduce a companion bill.  “Our hope is that momentum from House passage will spur the legislation forward in the Senate,” Melancon added.