Working Across State Lines

Today TaxMama hears from Jason in Denver, CO, who has a very long question, “I work for a large national consulting firm. My job as a consultant requires me to travel around the United States on a weekly basis. After spending a total of 30 days working in a state, they begin to take state taxes out of my check. However, they don’t stop taxing me on my home state (Colorado) taxes. They claim to make up for this by offering us “interest free loans” in the amount that is deducted. However, to qualify for these loans, you have to agree to use their tax accounting firm at year end. Communication with this firm is never face to face, and involves mailing off your receipts, W2’s, any applicable notes that may help them, etc. They make frequent mistakes, and never get you back everything that you are entitled to. My question is: How is this legal? Shouldn’t I be able to assume the burden of filing reports to these other states myself?

Am I crazy, or is this a class-action employee versus employer lawsuit waiting to happen? There are probably around 100,000 employees affected by this.”

Hi Jason,

What they are doing is not illegal. And no one is forcing you to take that loan or to use their preparers.

In fact, they are doing you a big favor. They are giving you a loan, when you need the money – and they want to make sure they get paid back.

If you don’t want their loan, fine. You are free to use your own, local tax professionals. Your own tax professional will charge you a fortune to prepare that tax return. Expect to pay an extra $50 – $100 per extra state. It is somewhat complicated to prepare the non-resident tax returns for so many states.

Regardless. Immediately, stop throwing out that stuff about class action suits. And don’t put that out there at work.

It’s that kind of ungrateful talk that might cost those other 99,999 employees the ability to get those loans during the year. And it might cost you your job.

Due to the income tax laws in many states, your company is required, by state laws to deduct those taxes from your checks. It happens to ball-players, actors and others who regularly work in many states.

So, take a deep breath, and decide how you want to deal with it. But, remember, YOU have the control over who prepares your tax returns.

Incidentally, why don’t you just file a W-4 for each state you visit and claim 8 or 9 exemptions?

That will reduce the amount they deduct for those states. You won’t need a loan. And you’ll probably break even on April 15th.

And, remember, you’ll find answers about all kinds of tax issues, free. Where? Where else? At TaxMama.com

Note: if you were subscribed to TaxMama’s TaxQuips daily e-mail, you’d also learn about IRS’s new policy with respect to your W-4s – sign up now.

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