The Mobile Workforce Simplification Act Could Mean Simplified Taxes for Traveling Workers

A recent survey of 811 employees found 502 of them, or 62 percent, have traveled for work in the last 12 months. Of those 502 mobile workers, half visited three or more states.

“You see it more and more, given the nature of technology,” says Dan Thrailkill, CPA and director at Ellin & Tucker. “For example, an employee might travel to Florida for the warm weather, but if they continue to work while they’re there, they’re going to be generating revenue, on the business’s behalf, in the state of Florida.”

Income taxes for each state vary extensively in the US. In Iowa, for instance, nonresidents must file a state tax return if their net income from Iowa sources is $1,000 or more. Just across the border in Missouri, however, nonresidents are required to file a state tax return if their Missouri income is more than $600.

Lack of knowledge won’t shield workers from heavy consequences

Given the variety of tax laws across the country, it’s no wonder most interstate workers don’t end up filing taxes in all the places they’ve worked. In fact, only 23 percent of mobile employees say they’ve paid taxes to another state, meaning 77 percent could be committing tax fraud without knowing it. And that kind of oversight could lead to major consequences.

“More and more states are becoming aggressive with these types of things,” says Thrailkill. “We’ve seen it where several attorneys are trying cases in certain states, and those court documents have made [the Department of Labor] start asking questions.”

Perhaps the most unfortunate part is most interstate workers don’t realize they’re breaking the law by not filing taxes in the states they travel to throughout the year.

“We had a new client here in Maryland, who had an employee working in New Jersey for 20-something years,” says Thrailkill. “During the new client onboarding process, we started asking questions and, at the same time, received a notice from the state of New Jersey, asking us to file tax returns back to the mid-1980s, which included the minimum taxes and penalty and interest all the way through.”

The goals of the Mobile Workforce Simplification Act

Most lawmakers agree: People aren’t trying to break the law. The law is just too complicated.

Representative Mike Bishop, a Republican from Michigan and sponsor of the bipartisan bill, released a statement in June 2017, saying, “Currently, employers and their traveling employees must navigate their way through a complicated maze of varying state income tax laws when they leave their home state for work. By simplifying these requirements across America, we can reduce compliance costs and confusing paperwork for everyone involved.”

Simplifying is right. If passed, the Mobile Workforce State Income Tax Simplification Act will prevent states from taxing nonresident workers unless they’ve been working there for more than 30 days.

But will it pass?

Understanding the obstacles ahead of H.R. 1393

Lawmakers have been trying to pass some sort of “road warrior” compliance legislation for years. Crazy enough, the bill has achieved bipartisan support each time. But due to its historical lack of support from states like New York, Massachusetts, Illinois, and California, the bill has died in every attempt.

These states would lose big if a law like this were to pass, given their cities are popular meeting places for professionals from around the country. According to a 2015 House report on the then-titled H.R. 2315, the Congressional Budget Office estimated New York’s losses between $50 million and $100 million. New York state’s estimates are even higher, at $100 million to $125 million. A “revenue loss … greater than the revenue impact on all other states combined.”

The current bill is unlikely to gain support from heavy-hitters like New York and Massachusetts anytime soon, though representatives from California and Illinois actually co-sponsored its latest form.

That said, as of this writing, Skopos Labs estimates the bill has only a 17 percent chance of being signed into law. Previous versions have passed the House before (including H.R. 1129 from 2013), then died in the Senate, and it’s possible H.R. 1393 may simply follow suit.

Nevertheless, CPAs and mobile workers alike should not give up hope. If there’s one fact we can glean from history, it’s that even if this Mobile Workforce Simplification Act doesn’t pass now, it’s a tough bill to kill completely.

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Danielle Higley is a copywriter for TSheets by QuickBooks, a time tracking and scheduling solution. She has a BA in English literature and has spent her career writing and editing marketing materials for small businesses. Last year, she started an editorial consulting company.