Webcast Summary: Out-Of-State Wage Credits
Prior to beginning a discussion on out-of-state wage credits, it is necessary to understand the concept of state unemployment insurance (“SUI”) sourcing. Employers and state workforce agencies are required to use what is known as the “four-factor test” to determine the state to which an employee’s wages are to be reported when employees work in more than one state. See the April 2012 issue of Tax Intelligence for additional information on the “four-factor test” and SUI sourcing. Once the proper SUI sourcing state is determined and properly applied and an employee’s SUI sourcing state changes, out-of-state wage credits can then be addressed.
Out-Of-State Wage Credits
Definition and Common Triggers
When an employee’s SUI sourcing state changes, most state workforce agencies allow employers to take credit for wages paid in the state of origination when determining the annual taxable wage base limit in the destination state. Out-of-state wage credits, where allowed, can be utilized by a single employer when there is a permanent mid-year change in the SUI sourcing state. Common situations in which out-of-state wage credits apply include: interstate headquarter moves, expansion or growth into a new state resulting in employee transfers, employee promotions or relocations, or the implementation or revocation of a “work-from-home” policy.
Amount of the Credit
The amount of the allowable credit is determined on an employee-by-employee basis and is equal to the lesser of:
- The actual taxable wages paid to the employee;
- The annual taxable wage base of the state of origination; or
- The annual taxable wage base of the destination state.
Out-of-State Wage Credit Challenges
Although most states allow out-of-state wage credits, there can be challenges associated with utilization of the credits. Three primary challenges employers face include:
- States that do not allow credit for out-of-state wages (i.e. LA, MN, and MT)
- State workforce agencies requiring employers to remit the entire SUI tax liability, without regard to out-of-state wage credits, and subsequently file a claim for refund (i.e. MA).
- State workforce agencies “modernization” of SUI tax filing platforms that only allow for gross wages to be reported rather than taxable wages, which prevents the immediate use of out-of-state wage credits.
A three-phased approach can assist employers in taking advantage of out-of-state credits, both retroactively and prospectively:
- Understand the rules. Determine if your organization is addressing a “SUI sourcing” issue or an “put-of-state wage credit” issue and understand how each state workforce agency implements its rules.
- Operationalize the rules. Review the current SUI sourcing and out-of-state wage credit practices to determine how best to apply the rules within your organization.
- Historical look back. Identify historical trigger events that may permit use of out-of-state wage credits, quantify the potential financial impacts those wage credits may have on your organization, and file claims for any available refunds within the applicable statute of limitations.
For additional information on the issues discussed in the webcast, please contact Pete Krieshok at (314) 214-7325 or via email at firstname.lastname@example.org. You can also visit our blog at Equifax Insights Blog. For a replay of this webcast, please visit the following Replay Link.
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