Question: We have an employee who lives and works out of one state but does work for our office in another state and travels to that office a couple times of month. Do we withhold taxes for the state the employee lives and primarily works in or for the state he often travels to for work?
Answer from the experts at HR.BLR.com:
You have listed Illinois as the jurisdiction relevant to your question. The answer to your question may depend on the state in which the nonresident employee performs work. For example, compensation earned by an Illinois resident who worked in Iowa, Kentucky, Michigan, or Wisconsin is taxed by Illinois, but not by the other states, because of reciprocal agreements between Illinois and these states.
If the employee performed services in states not covered by a reciprocal agreement, the general rule is that taxes must be withheld when the employee’s income is subject to the state’s income tax. Depending on state law and the number of days the employee works in the other state, the employee may be subject to the other state’s income taxes.
Performing “de minimis” services in another state usually falls within a state’s exception to tax withholding, but states have different laws regarding the number of days a nonresident employee may work in the state without incurring tax obligations. For example, a nonresident employee may work in Connecticut for 14 days each year without tax liability. Other states have 30-day limits, and some have no maximum.
The Illinois Department of Revenue’s Publication 130 explains Illinois’ income tax withholding requirements and provides information about reciprocal agreements. Consultation with a tax attorney or accountant is recommended to ensure compliance with each state’s income tax laws.
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