You might need to pay
This week our country celebrates Labor Day and the contributions that all workers have made towards the prosperity of our country. I thought celebrating workers would be a great time to talk about something that affects both business owners and employees who work in multiple states: the state income tax.
41 states, like California, New York, New Jersey, Oregon, and Vermont, levy a personal income tax. But what if you live in a state without income tax and are paid by an employer headquartered in a state where income taxes are paid? Did you know, you might be forced to pay up? Here’s why:
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INCOME TAX IMPLICATIONS
States like New York have income tax laws on the books that “impose a personal income tax on a nonresident individual’s taxable income that is derived from New York sources.” The tax is calculated by computing income as if the individual were a New York State resident for the entire year, then reduced by certain credits and multiplied by the income percentage.
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PHYSICAL PRESENCE
The income tax law may not seem fair. Many people who claimed the law didn’t apply to them have challenged it in court and won. In some cases, a state will not apply the state income tax without a “physical presence.” That means you couldn’t get taxed if you work remotely and do not perform tasks in the state in question.
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CONVENIENCE OF EMPLOYER
In some states, the “convenience of the employer” is the litmus test. That means income must be earned by work performed out of the income tax state in question for the necessity of the employer, rather than out of convenience. So if you live in another state just because you like the weather better, then you would have to pay income tax, but if you work in another state because you can’t perform that job anywhere else, then you wouldn’t be liable for state income taxes.
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DOUBLE TAXATION
Every state wants to have a healthy economy and the way they do that is through taxes. So keep in mind that if you live in a state with a state income tax and your company’s headquarters are in another state with a state income tax, you could be liable to pay both state income taxes. Federal lawmakers have been trying to enact laws to prevent this, but so far that hasn’t happened. If you potentially fall into this category, call your accountant or call us at Brigade Bookkeeping immediately.
Florida does not have a state income tax and that’s why so many business owners and people choose to live here. But if you live here and are employed by a company in an income tax state, it doesn’t hurt to check your tax liability.
I hope you’re not laboring on Labor Day and that you’re getting to enjoy a long weekend off.
