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Ask Lane Your Own Question

Lane
Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3696
Experience:  Providing Financial & Tax advice since 1986
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multistate taxation question. If an employee is hired for

Resolved Question:

multistate taxation question. If an employee is hired for a temporary project in one state but lives in another state, which state should they pay taxes in? For example, employing production workers for commercial shoot for 4 days in Louisiana, most of whom live/are residents of California. Are we required to withhold taxes for Louisiana or California? (Our company is actually based out of New York)
Submitted: 9 months ago.
Category: Tax
Expert:  Lane replied 9 months ago.

Lane :

Hi,

Customer:

Hello

Lane :

Each state (as separate taxing authorities will have their own rules about who must file as either a resident or non-resident

Lane :

And most will require tax be paid on their state's source income, which generally...

Lane :

means income earned while in their state ... but, again, each state has it's own definition of what constitutes "California source income," for example, as well

Lane :

And finally,

Lane :

as these individuals do their own state tax return MOST states will tax all income for residents BUT provide a credit for taxes paid to another state

Lane :

In the scenario you described there would be no need to withhold

Lane :

BUT the individuals should look at the states where they ear income to see whether that state requires the filing of a non-resident return

Lane :

Here''s California's page for deciding whether one needs to file a non-resident return: https://www.ftb.ca.gov/individuals/fileRtn/

Customer:

as for our employer obligation, what would it be in this situation. Would we have to withhold in CA?

Lane :

and here's a link found on THAT page that shows how much income needs to be earned there before there's even a need to file:https://www.ftb.ca.gov/forms/2012_California_Tax_Rates_and_Exemptions.shtml#ifr

Lane :

No, as you can see from the chart, there would (I'm guessing - not knowing the amount of payment) not even be a need to report in California at all

Lane :

Now, if the employees are residents of California, and will work there on a full tim basis, then yes you will need to do CA withholding

Lane :

Simplest solution would be to pay them as contractors (1099)

Customer:

As of right now we apply withholding taxes of wherever the work is being performed, such as the workers in louisiana, we taxed in Louisiana even though they live in California, would this be proper

Customer:

unfortunately we have discovered that doing the employee v contractor test via the IRS they are classified as our employees based on duties but that is how we ahve done it in the past

Lane :

In the 4 day scenario, no that's not necessary .. again, probably not even enough to need to report there

Customer:

so no need to report in Louisiana you mean

Lane :

Correct

Customer:

not sure if you could answer this but would we need to tax for state unemployment in Louisiana in that case?

Lane :

Speculation would be no (each state will have thresholds for that as well)

Customer:

and that would be a separate threshold then income tax correct?

Lane :

Yes, that would be a state dept of labor issue

Customer:

ok got it, now just to clarify, in the situation described with louisiana/California. It seems that for a four day project they would not have to have taxes withheld in Louisiana, but would we have to withhold since they are residents of California in California? Or would that be something for them to handle on their return?

Lane :

If you'd like I can work up something that covers all the bases .. but really would have to handle that as an "offer more project"

Customer:

what would an offer more project entail

Lane :

I think honestly we're there now, but we now have something available where I can offer to take on a project at a price we negotiate (that really may be MORE than you're looking for) but to answer your question ...

Lane :

four day project in Louisiana, right no need to withhold for that ... and ...

Lane :

The time fram for the CA residents id also just four days?

Lane :

"is" also ...

Customer:

yes california residents working in Lousiana for 4 days

Lane :

No ... you're not doing business in CA .. They would just need to report is as additional income...

Customer:

so as the employer there would be no obligation on us in this case?

Lane :

Most states have their own exemption certificate form that, for state withholding purposes, serves the equivalent function of the federal Form W-4.

Customer:

ok great, i think this clarified things a bit

Customer:

thank you for your help

Lane :

YW

Lane :

Just found this:

Lane :

Generally speaking, merely performing de minimus services in a state as an employee will not alone cause the employee to be subject to the state's income tax if the employee's principal place of employment is outside the state. Bear in mind that not all states have a de minimus exception and that the time period will vary dramatically from state to state. For example, Connecticut has a 14-day period, but other states permit 30 or more days of work.

Lane :

so that's the LA piece

Lane :

And here's CA's form: Employee Withholding Exemption Forms: California Form DE-4

Customer:

oh good that applies to this directly

Customer:

and when is this form used again?

Lane :

Yes, and then you can have them complete the CA form to state no withholding ... for a four day project that would be deemed as reassonable

Customer:

ok got it!

Lane :

By the way, you may find this helpful (just to cover the bases):

Lane :

Withholding Services and Compliance MS F182
Franchise Tax Board
P.O. Box 942867
Sacramento, CaliforniaNNN-NN-NNNNbr/>Telephone:(NNN) NNN-NNNN/p>

Customer:

ok great, thank you

Lane :

You're very welcome

Lane :

Can I help with anything else today?

Customer:

no thank you for your hel[

Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3696
Experience: Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you

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