New legislation would simplify income tax for those working in multiple states

U.S. Rep. Mike Bishop (R-MI) and U.S. Sen. John Thune (R-SD) wrote in the September issue of the Ripon Forum that more than 40 states that impose personal income taxes on income earned within their border, regardless of the residency of the earner, are placing a substantial burden on workers who cross state lines for employment.

According to Bishop and Thune, one major example of the problem was highlighted by a witness at a recent House Judiciary Committee hearing who described an employee who filed 50 W-2s in one year. In addition to the administrative expenses for both employee and employer, there are also potential penalties for failing to file or not withholding in a timely manner.

“Simply put, American workers should not be punished with burdensome paperwork simply because jobs in the modern economy may take them to multiple states,”  Bishop and Thune wrote. “Rather than expanding their payrolls or reducing the prices of goods for consumers, businesses are being forced to re-allocate resources to comply with convoluted state income tax laws. The Constitution grants Congress the authority to enact laws that protect the free-flow of commerce between the states. While we support federalism and the ability of states to set their own policies, the problems created by allowing states to determine when they can impose income tax on residents of other states deserve a serious solution.”

In a measure meant to simplify family and business income tax obligations, Bishop and Thune have introduced legislation to reduce the costs for America’s mobile workforce while not hindering interstate commerce.

House bill H.R. 2315 and Senate bill S. 386, known as the bipartisan Mobile Workforce State Income Tax Simplification Act of 2015, would, if enacted, provide a bright-line test to determine when state and local governments can subject non-residents to state and local income taxes. Under the legislation, wages paid to an employee working in multiple states would be subject to the laws of the employee’s state of residence. The employee would also be subject to the same laws of any state in which he or she conducts business for more than 30 calendar days of the year.

“We live in a time when more and more Americans are finding themselves traveling for their jobs, and the tax complexities created in this new economy demand a common-sense solution,” Bishop and Thune wrote. “With significant bipartisan support in both the House and Senate, we remain optimistic about our legislation becoming law in the near future.”