Nonresident income taxes are income taxes that a worker owes in a state in which he or she does not reside. The taxes require an employer, in some circumstances, to without payroll taxes from both states, and an employee to file a nonresident tax return in the state he or she worked but does not live.
Essentially, the employee usually ends up paying the same amount in income taxes because the home state often gives the employee credit for the income taxes that were paid to the non-home state. While the issue shouldn’t seem to matter much to employees, employers or the IRS, states do care because they see it as lost or added revenue.
In the past, the issue of nonresident income taxes has been largely unenforced because it is a complex and somewhat cumbersome area of tax law. However, there are penalties for non compliance, and as an article in Forbes reported this week, states are beginning to go after nonresident income taxes more aggressively. Many have also adopted rules on the issue, including New York.
Congress has proposed several bills in effort to create uniformity and simplicity, including one measure that would limit the ability of state and local governments to collect income tax from nonresident employees who are only working in their precincts temporarily. However, the bills may never have success, especially with states like New York that would lose a lot of revenue under the policy.
Ultimately, this is an important tax issue that is being enforced more aggressively than ever before, which is why employers and employees need to make sure they are in compliance with the law. An experienced tax attorney can help with this.