Our increasingly mobile workforce has created opportunities for businesses to grow and expand throughout the nation. Employees can begin their day on one side of the country, travel several states away and still make it back home in time for dinner. Temporary work assignments for people whose jobs require them to travel and work in multiple states have become increasingly common.
When individuals work across state lines for any period during the year, they may be required to file income taxes in their home state and in the states in which they earned income. Currently, there is no uniform standard for levying state income taxes on out-of-state workers. The result is that workers and businesses face a confusing system of 41 different state income tax reporting requirements varying based on the length of stay, amount of income earned, or both. Simplifying the current system will ease reporting burdens for employees and employers.
While tax credits are issued in the home state to prevent double taxation, the burden of complying with 41 unique thresholds for income tax reporting complicates filings for businesses and individual employees. Residents of states without an income tax, such as South Dakota, are unable to recover income tax payments to other states.
Employees and employers should not be burdened with complex tax reporting requirements because jobs in the modern economy involve work in multiple states. That is why last month I introduced legislation along with Senator Sherrod Brown (D-Ohio), the Mobile Workforce State Income Tax Simplification Act, which would establish a clear 30-day threshold test for state income tax purposes. Only after an individual is present and working for more than 30 days out of the year in a state could that state require the worker to file, and the business to withhold, state income taxes. This legislation will greatly simplify state income tax filings, is fairer to those residents in states without an income tax, and should help to encourage tax compliance. Our legislation is supported by the South Dakota CPA Society, the American Institute of CPAs, along with several other groups and organizations.
While this legislation is an important step to easing the tax reporting requirements for businesses and employees, it is just one of many measures that Congress should consider to reduce tax compliance costs. Streamlining our tax code will strengthen our economy, improve the competitiveness of our businesses, and greatly ease the tax burden for American families. I will continue my work in the tax-writing Senate Finance Committee to fight for a tax structure that will create wealth and improve take-home pay for the people of our state and nation.