Tax Intelligence: Out-of-State Wage Credits
When an employee is permanently transferred or relocated from one state to another within the same legal entity, the state to which wages are reported for state unemployment insurance (“SUI”) tax purposes typically changes. To avoid a duplication of SUI tax on wages paid to a single employee, most states (other than Louisiana, Minnesota, and Montana) offer employers the opportunity to carryover taxable wages to the destination state. Because of the material impact duplication of SUI taxes can have on employers, this issue of Tax Intelligence offers examples applying the guidance provided in the April 2014 issue of Tax Intelligence.
In June of 2014, Employer A headquartered in Mississippi relocated to Alabama. As a result, 500 employees changed work-states. Since there was a permanent relocation, Employer A is eligible to take credit for wages paid in Mississippi in determining the annual taxable wage base (“TWB”) for wages paid in Alabama. Each impacted employee met the TWB in Mississippi ($14,000) and in Alabama ($8,000). Due to payroll system limitations, Employer A restarted the TWB for all 500 employees creating the following tax overpayment:
Since the Mississippi annual TWB is higher than that in Alabama, none of the Alabama taxable wages associated with the impacted employees should have been subject to SUI taxation in Alabama. Employer A is eligible to file an Alabama claim for refund to recover the duplicated SUI tax.
Implementation of a Telecommuting Policy
Employer B implemented a new “work-from-home” policy for a certain class of employees in June of 2012. Five hundred eligible employees elected to participate, of which 300 New York-based employees began working from their personal residences in Massachusetts. Each employee met the TWB while performing services in New York ($8,500) and in Massachusetts ($14,000). Since the election to work from home would be considered a permanent move, Employer B is eligible to take credit for wages paid in New York in determining the higher annual TWB for wages paid in Massachusetts, resulting in the following overpayment:
Since the New York annual TWB is lower than that in Massachusetts, a portion of the Massachusetts wages paid associated with the impacted employees should not have been subject to SUI taxation in Massachusetts (i.e., only taxable wages up to the New York annual TWB are allowed as an out-of-state wage credit). Employer B is eligible to file a Massachusetts claim for refund to recover the duplicated SUI tax. To avoid statute of limitations concerns, Employer B should do so as soon as practicable. Employers in Massachusetts are required to remit the full amount of SUI tax up front and then request a refund using an “Out of State Wage Detail Credit Request” form.
Employers can typically seek refunds retroactively for three years for overpaid SUI taxes associated with out-of-state wage credits. For more information about how Equifax can assist employers with retroactive refunds or applying out-of-state wage credits prospectively, please register for our February 24th, 2015 webcast at the following link “Out-of-State Wage Credits” or contact Pete Krieshok at (314) 214-7325 or via e-mail at firstname.lastname@example.org. You can also visit our corporate blog at https://insight.equifax.com/ for information on other employment tax matters that might impact your organization.
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