›

NE/IA Payroll Withholdings

ljohnsonljohnson 22 Posts
in Compensation Vote Up0Vote Down
We conduct ALL of our organization's business in Nebraska. We have an employee that lives in Iowa (keep in mind she works only in Nebraska) who has requested taxes be taken out of her pay according to Iowa's laws instead of Nebraska's. We'd rather not do that since it means more work for us, but are there any requirements or standard procedures out there? Thanks!!!
Share on Facebook Share on Twitter

Comments

  • 5 Comments sorted by Votes Date Added
  • AnitaAnita 86 Posts
    PMVote Up0Vote Down
    My understanding is that they are taxed in the state they work(money is earned) not in the state they live in. I work in Oregon, but live in Washington, I must pay Oregon state taxes.
    Share on Facebook Share on Twitter
  • Terri BTerri B 61 Posts
    PMVote Up0Vote Down
    We are an Iowa employer. We are on the state line next to Illinois. We have to allow IL residents to claim IL taxes because IA and IL have a reciprocal agreement that allows this. I have been lead to believe that employers don't have to withold another state's taxes without this agreement. In fact, you may find yourself in trouble with your own state if you do it and aren't allow to. Hopefully someone who has more knowledge in this area will respond. I will be watching so I can learn too.
    Share on Facebook Share on Twitter
  • Lori BLori B 172 Posts
    PMVote Up0Vote Down
    Be careful. Be careful. Be careful. This area is very state specific. There are no hard and fast rules that you can apply from one state to another. It requires research. If you are a member of APA, you should be able to find some of this material in their publications. If you use a large payroll company like ADP or Ceridian to process your payroll, they should also have research tools available. Of course, you have to push them here for help bc they are quick to disclaim the ability to provide any tax advice. If all else fails, get an opinion from your tax accountant.

    Here is what I have learned from our mistakes in the past with our cross state offices:

    1. Only a handful of states of have reciprocity. Reciprocity means that you can tax the state of residence instead of state of work. WI and IL have this. I believe that OH has it with about a half dozen states as well. This typically requires that you have the ee complete a special W-4 for the state of work for nonresidents to document which state you are withholding for.

    2. Most states want to be primary if they are the state of work. For ex, NE is going to want you to withhold for it instead of IA. (We have this exact situation in my company.) No reciprocity exists between those two. NE will fine the hell out of you if you pay it to IA instead. Your ee will have the surprise of a lifetime next April when NE then demands a full tax payment on the spot...

    3. Watch out for MO too. We have offices on the IL and KS border. No reciprocity for anyone. Thus, MO is primary with IL and KS, as the case may be, secondary. What this means: our system withholds for MO first then Il or KS are withheld if their tax rates would be higher in those states. In a nutshell: KS and IL want their tax but they are recognizing that MO is primary. Employee actually gets a W-2 for both states.

    These are just some quick examples. I again caution you to be careful. This area is really expensive to undo if you wait until W-2 time...
    Share on Facebook Share on Twitter
  • Don DDon D 9,834 Posts
    PMVote Up0Vote Down
    Man! What an education I got! Thanks. Sounds like another 'camel that started out as a horse built by a government committee'.
    Share on Facebook Share on Twitter
  • Lori BLori B 172 Posts
    PMVote Up0Vote Down
    Oh Don you are so right. Our payroll dept has been burned beyond belief by cross state scenarios that have no rhyme or reason. Now, don't get me started on Local Taxes 101....
    Share on Facebook Share on Twitter
Sign In or Register to comment.