Business Travel and Taxes
Tax & AccountingMarch 09, 2022

State Withholding and Filing Rules for Nonresident Employees

The assortment of state income tax withholding and nonresident filing rules can create headaches for both employers and employees. Remote work arrangements during the COVID-19 pandemic revealed the problems with the hodgepodge of state rules.

41 states and the District of Columbia impose a personal income tax on wages. New Hampshire taxes only interest and dividend income.

Employers can face unexpected withholding tax liability for employees working even a short period of time in another state. Employees also shouldn’t wait until the last minute to review state and local income tax laws and filing requirements in places where they perform services or conduct business.

Other reasons individuals may need to file a nonresident state income tax return include receiving income from:

  • a partnership, LLC or S corporation based in another state;
  • a trade or business in another state, like consulting services;
  • rental property in another state;
  • the sale of real estate in another state; or
  • lottery or other gambling winnings from another state.

The U.S. Congress repeatedly introduces and fails to pass federal mobile workforce legislation to simplify state withholding and filing requirements. The legislation typically prevents state withholding or taxation of employee income, except by:

  • the state of the employee’s residence; or
  • the state in which the employee is present or performs services for more than a specific number of days (e.g., 30 days).

The Multistate Tax Commission (MTC) also approved a model mobile workforce statute to encourage state uniformity. The MTC proposal sets a 20-work day threshold for nonresident employee withholding and filing requirements.

How Many States Have Work-Day Withholding Thresholds?

8 states have work-day withholding thresholds for nonresident employees.

  • Arizona
  • Connecticut
  • Hawaii
  • Illinois
  • Louisiana
  • New Mexico
  • New York
  • West Virginia

Utah provides withholding relief if an employer can certify that it is not doing business in the state for more than 60 days during the calendar year.

How Many States Have Wage or Income Thresholds?

6 states have wage or income withholding thresholds for nonresident employees.

  • California
  • Idaho
  • Minnesota
  • Oklahoma
  • South Carolina
  • Wisconsin

Georgia and Maine have a combination of an income and work-day threshold. Oregon provides withholding relief if an employer can show that wages paid are $300 or less during the calendar year.

How Many States Have No Withholding Tax Thresholds?

22 states and the District of Columbia do not have any withholding thresholds based on workdays, wages paid, income received, or other criteria.

  • Alabama
  • Arkansas
  • Colorado
  • Delaware
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Maryland
  • Massachusetts
  • Michigan
  • Mississippi
  • Missouri
  • Montana
  • Nebraska
  • New Jersey
  • North Carolina
  • Ohio
  • Pennsylvania
  • Rhode Island
  • Vermont
  • Virginia

What Are the State Filing Thresholds for Nonresidents?

24 states require the filing of an income tax return if a nonresident’s income from state sources for the tax year exceeds:

  • a specific filing threshold;
  • the nonresident’s standard deduction; or
  • the nonresident’s personal exemption.

These states include:

  • Alabama
  • Arizona
  • California
  • Connecticut
  • Georgia
  • Hawaii
  • Idaho
  • Iowa
  • Kentucky
  • Massachusetts
  • Maine
  • Minnesota
  • Missouri
  • Montana
  • New Jersey
  • New York
  • North Carolina
  • Oklahoma
  • Orgeon
  • Pennsylvania
  • Vermont
  • Virginia
  • West Virginia
  • Wisconsin

Many of these states base the filing threshold on a nonresident’s adjusted gross income and filing status.

17 states have return filing requirements for nonresidents who receive taxable income from state sources, regardless of income level.

  • Arkansas
  • Colorado
  • Delaware
  • Illinois
  • Indiana
  • Kansas
  • Louisiana
  • Maryland
  • Michigan
  • Mississippi
  • Nebraska
  • New Mexico
  • North Dakota
  • Ohio
  • Rhode Island
  • South Carolina
  • Utah

Do States Offer Credits for Taxes Paid to Another State?

To avoid double taxation, all states allow residents to take a tax credit on their tax return for income taxes they paid to other states. 

Do States Offer Other Relief?

Reciprocal state agreements allow individuals to work in another state without having to file a nonresident income return. The agreements also relieve employers of their withholding obligations. They are typically made between neighboring states that share borders.

Reciprocal agreements exist between:

  • Arizona, California, Indiana, Oregon, and Virginia;
  • The District of Columbia, Maryland, and Virginia;
  • Illinois, Iowa, Kentucky, Michigan, and Wisconsin;
  • Indiana, Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin;
  • Iowa and Illinois;
  • Kentucky, Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, and Wisconsin;
  • Maryland, the District of Columbia, Pennsylvania, Virginia, and West Virginia;
  • Michigan, Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin;
  • Minnesota, Michigan, and North Dakota;
  • Montana and North Dakota;
  • New Jersey and Pennsylvania;
  • North Dakota, Minnesota, and Montana;
  • Ohio, Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia;
  • Pennsylvania, Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia;
  • Virginia, the District of Columbia, Kentucky, Maryland, Pennsylvania, and West Virginia;
  • West Virginia, Kentucky, Maryland, Ohio, Pennsylvania, and Virginia; and
  • Wisconsin, Illinois, Indiana, Kentucky, and Michigan

Conspicuously absent from the states providing one another reciprocity are New York, Connecticut and New Jersey. As a result, workers who live in one of these states and work in another must file nonresident income tax returns if they meet the filing thresholds.

Tim Bjur, PD
Senior Content Management Analyst
Tim Bjur is an attorney and senior content management analyst for Wolters Kluwer Tax & Accounting, who has spent the last 18 years analyzing state income tax legislation, case law, and regulatory developments. He offers a detailed understanding of state personal and corporate income taxation and trends across all states and has been quoted in top media publications, including Forbes and CNBC.
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