Healthcare travelers often cross state lines to take temporary assignments. The tax consequences can be extremely confusing for even the most seasoned traveler.
To clear up your state tax issues, the best thing you can do is consult a tax advisor with lots of experience helping tax payers that work in multiple states.
Here are some of the common questions concerning state taxes:
My staffing company is headquartered in a state that doesn’t charge income tax. Since I’m an employee of that company, do I have to pay state taxes?
The location of your healthcare staffing company doesn’t have anything to do with your state tax liability.
Your state tax liability depends on two factors: the tax laws in your state of residence, and the tax laws in the state you worked in. Simply put, there are fifty states, each with their own different tax laws.
My staffing company doesn’t withhold any state taxes from my paycheck. Does that mean that I don’t have a state tax liability?
No. Your state tax liability depends on where you worked and where your permanent tax home is located.
Many smaller staffing companies do not have the infrastructure to withhold the proper state taxes. Larger companies consult state tax specialists to help them withhold the correct amount. State tax consultants usually charge a hefty fee for this kind of advice.
Smaller companies are trying to ‘fly below the radar.’ They’re either oblivious to their duties or they choose to ignore them. They may not have the resources to hire tax specialists and build the accounting infrastructure they would need to deduct the correct state taxes from your paycheck.
Companies that neglect to withhold the proper taxes from your paycheck are exposing you to significant tax liabilities. Your tax returns are open for three years. You could be audited and required to pay back taxes, penalties, and interest.
Any company that neglects to withhold the proper taxes is also exposing itself to a huge tax liability.
If I work in a state that doesn’t charge state income tax, do I owe any tax in my home state?
It depends on the tax laws in your home state. Many states do charge income tax. Check with a qualified CPA.
If I regularly live in state that doesn’t collect income tax, and I take an assignment in a state that has a state income tax, do I owe state taxes?
You probably owe some state taxes, but it depends.
One thing is for sure: living in a state without income taxes doesn’t automatically exclude you from the laws and regulations of states where you take temporary assignments.
If my home state has income taxes and I work in another state that collects income taxes, do I owe taxes to both states?
Probably not, but it depends.
Many states have laws that give you credit for paying state income taxes in another state. Traveling from state to state creates complicated tax issues and you really need to check with a competent CPA to determine your liability.
Paying taxes in one state doesn’t automatically free you from state tax liabilities in another state.
I took an assignment in a state that collects income taxes but the assignment lasted only about a week. Do they expect me to pay those taxes?
It depends. Some states won’t expect taxes to be paid unless the assignment last a certain amount of time or unless you earn a certain amount of money.
Other states expect you to pay them taxes from dollar one.