Remember the Multi-State Worker Tax Fairness Act—the legislation that would abolish the tax penalty for telecommuting across state lines? Well, it has now been introduced in the U.S. Senate, as well as the House, and telecommuters and their employers must unite to help get it passed!
About the Multi-State Worker Tax Fairness Act
Senators Richard Blumenthal and Chris Murphy from Connecticut introduced the Senate version of the measure on May 15. Just like the House bill introduced in February by Connecticut delegates Jim Himes, Rosa DeLauro, and Elizabeth Esty, the Senate bill would prohibit states from applying a tax rule known as the “convenience of the employer” rule.
Current Law Hurts Telecommuters AND Employers
In a state with a convenience rule, if a nonresident works for an in-state employer and opts to telecommute sometimes, she will have to pretend that the days she spent working at home were days she spent working in her employer’s state. Thus, she will have to treat the income she earned at home as if she earned it in her employer’s state and pay tax to the employer’s state on that income. The convenience rule state taxes the home state earnings, even though the home state can tax those earnings, too. Because of the convenience rule, telecommuters nationwide can be double taxed on wages they earn while telecommuting.
To help their residents avoid a double tax penalty, some states offer a credit for taxes the residents pay to their employer’s state on the income earned at home. But these telecommuters may still be penalized as a result of the convenience rule: If the tax rate in the employer’s state is higher than the tax rate in the telecommuter’s residence state, the telecommuter will have to pay the higher rate on the compensation she earns at home. Even telecommuters who live in a state with no income tax suffer. Despite the fact that they chose to live in a state with no tax, they still have to pay tax on the wages they earn there—to the state where their employer elected to set up shop.
The bottom line? Employees who telework for an out-of-state employer may be forced to pay extra income tax simply because they commute via the Web.
The convenience rule also hurts businesses. Both the confusion that the rule generates for employees and the threat of an additional tax bill discourage employees from adopting telework. The telework deterrent sabotages a company’s ability to develop a robust telework program and to maximize the cost-savings, productivity increases, and recruitment benefits that decentralization offers. In addition, the rule creates confusion and high costs for the companies themselves; determining where the firm must withhold taxes for its interstate telecommuters can be a tremendous challenge, and the difficulty can cause an undue rise in compliance expenses.
Stopping the Tax Penalty on Telecommuters
The Multi-State Worker Tax Fairness Act would provide much-needed relief. It would bar states from taxing the income that nonresidents earn when they are physically present in another state. Further, it would prohibit states from requiring nonresidents—under a convenience rule or any similar rule—to report that they were physically present in the employer’s state, when, in fact, they were working from home. The risk of double or excessive taxation for telecommuting across state lines would be removed.
The remedial legislation has broad support. 1 Million for Work Flexibility and FlexJobs are endorsing the measure. Other endorsers include The Telework Coalition, The American Legion; The National Guard Association of the United States; The Armed Forces Foundation; VetJobs; RecruitMilitary LLC; The Military Spouse JD Network; The Association for Commuter Transportation; National Taxpayers Union; JALA International; The Caregiver Action Network; Take Back Your Time; AgilQuest Corporation; The Small Business & Entrepreneurship Council; and The Christopher & Dana Reeve Foundation.
Please join with your support!
Let your Congressional delegates know that the Multi-State Worker Tax Fairness Act must become law, and urge them to cosponsor the bill. You can find contact information for your delegates, a sample letter, and other information about how to promote the bill here.
Act today, and help eliminate the punitive tax on interstate telework!
photo credit: thinkstockphotos.com