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The Mobile Workforce Bill and the 30 Day Rule for Temporary Assignments

There has always been some confusion around tax filings for employees on temporary assignments. At what point should companies withhold state and local taxes for assignees? One day? One week? A month? Technically, if even one day is spent working in a state, then local and/or state taxes may need to be withheld. Most companies, however, use a 30 day rule where if one month or more is spent in a state, then they will proceed with withholding state and local taxes. It’s important to know that the popular 30 day rule is not a law – it is simply an industry practice.

The good news is that there are efforts to make the 30 day rule standard practice by law, which should eliminate some of the confusion. Currently, the Mobile Workforce Bill (formerly H.R. 2110 and S. 3485; also H.R. 3359) has a projected enactment date of January 1, 2014. If the bill goes forward, then by law companies must withhold employment taxes, and the taxpayer must file the appropriate tax returns in the applicable state, if an employee works 30 days or more in a state. For the most part, this bill is a win-win for employees, companies and the tax collectors because it will create consistency, encourage compliance and ensure greater accuracy in tax filings moving forward.

In addition to the new bill proposal, there are other considerations that HR, business travel and/or relocation managers should take into consideration if there employees on temporary assignments that exceed 30 days. Revenue ruling 93-96 gives the following guidance:

1. One year rule for temporary assignments

For temporary assignments that last a year or more, there is a renewed focus on reconciling state taxes in order to keep the employee whole for state income tax. The methodology used is to calculate what the employee would have paid in Federal and State/Local taxes had they not taken the temporary assignment and then compare that amount to what the employee actually paid in Federal and State/Local taxes because of the assignment.  The difference between the two amounts is the amount due the employee.  Some additional issues to consider are:

a)     Any state income tax “withholding” dollars that were advanced or loaned;

b)    The taxability of advances and/or loans;

c)     Multi-state tax credits taken or not taken on state tax returns;

d)    Being forced to itemize because of the extra state taxes paid and the potential loss of the Standard Deduction (STD) or General Sales Tax (GST);

e)     Non-resident and Part-year resident state tax returns;

f)      Administration of the program – loans, advances and repayments – reconciliations

2. Required administrative procedure

If an employee is going to work for more than 30 days in a state that is not their residence, and that state has an income tax, and the states do not have a reciprocal agreement in place, then a new W-4 must be completed and state taxes must be withheld by the payroll department in the new temporary assignment state.  The employee in turn must file a tax return in that new work state. States that do have reciprocal agreements sometimes help clarify the withholding requirements.  There are a total of 16 states that have reciprocal agreements. Here is the list:


State States with State Tax Reciprocal Agreements  
 D.C. All non-residents who work in DC can claim exemption from withholding for the DC income tax.  Plus MD and VA

IL Iowa, Kentucky, Michigan, Wisconsin

IN Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin

IA Illinois

KY Illinois, Indiana, Michigan, Ohio, West Virginia, Wisconsin, Virginia

MD District of Columbia, Pennsylvania, Virginia, West Virginia

MI Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin – Employers may create their own exemption form or use the line on MI-W4 for claiming exemption from withholding. Employee should write “Reciprocal Agreement” and the state name on that line.

MN Michigan, North Dakota

MT North Dakota

NJ Pennsylvania

ND Minnesota, Montana

OH Indiana, Kentucky, Michigan, Pennsylvania, West Virginia

PA Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia

VA Kentucky, Maryland, District of Columbia, Pennsylvania, West Virginia

WV Kentucky, Maryland, Ohio, Pennsylvania, Virginia

WI Illinois, Indiana, Kentucky, Michigan


David Oltman is the Chief Compliance Officer and Co-Founder of Ineo/Relocation Taxes LLC. He is an expert in the field of corporate relocation technology and taxes, including gross-up software and personal income tax return preparations. David can be reached at oltman@relotax.comor 203-529-3020. Or,  connect with David on LinkedIn or Twitter!


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