Help me sort through the tax issues of being an out-of-state employee.
October 4, 2010 9:38 AM   Subscribe

New job is 99% awesome. The 1% of not-awesome is that I've been told (essentially) to figure out my own state tax deductions. Help.

The company is based in Illinois, and they are not huge but not small, with revenue in the $30 million/year range. I am in Pennsylvania, and I am a full-time, non-contract, at-will employee. All work I'm doing is in Pennsylvania. No one in HR seems to know a) how to handle this, or b) what they should be pulling out of my paycheck for PA state taxes.

There are other full-time off-site employees, but there's a lack of consensus in the company about how to handle such folks. I've been told -- by HR, no less -- that my options are to either:

- Hire an accountant to figure this out for me, or

- Determine on my own how much PA taxes are, and then set aside any difference (if any) between that and IL, which taxes at 3%. The company will deduct the 3% (no idea where they'll be sending it, though!), and I need to make up any deficit there.

I'm really kind of irritated at this situation, because it seems like it's something that HR should be taking care of, not me. My job is my job; their job is to handle junk like income taxes and filing and knowing rates and whatever. Yes, I'm a bit of an unusual circumstance, seeing as I'm not in the office, nor am I an Illinois resident, but it really feels like this is something that someone who has a little more experience (like HR) with this should handle instead of leaving me to flail about on the internet and

Anyway, my questions are as follows:

1. Is my irritation irrational? If yes, then:
1a. What should be my next step?
1b. Should I hire an accountant? I have no idea how much such a consult would cost, so even a ballpark estimate of what I should expect to pay would be much appreciated. And if I have to hire an accountant, is this an expense I could submit to the company for reimbursement?
1c. If I set up a separate account to sock away money for state taxes, do I need to submit them on a more regular basis than annually?

If my irritation is not irrational:

2. How should I handle this? Should I push back on HR and tell them to figure it out?
3. How can I be sure that they're not going to screw something up and then I get a nasty surprise when I file 2010 taxes?

More generally:

4. I've thought about looking at paycheck stubs from my last job, which was PA-based and where I worked onsite to at least get a general idea of how much should be withheld. I did get a pretty tasty bump up in pay when I took the new job, though, so I'm not sure how that affects the percentage.

Any help and recommendations would be much appreciated. I'm a words person, not a math person, and I'm feeling both petulant and terrified that I might have to deal with my taxes in a non-traditional fashion.
posted by shiu mai baby to Work & Money (10 answers total)
You sound so stressed about this you should hire an accountant. If your situation is simple it shouldn't take more than an hour or two, maybe $200.

Your income taxes are ultimately your responsibility, not HRs. It'd be nice if they were more helpful but it's not their obligation, particularly if you are out of state.
posted by Nelson at 9:41 AM on October 4, 2010

They're hardly a 100% authorative source, but I use Paycheck City for various payday calculations. Might be able to find what you're looking for there.
posted by Rendus at 9:41 AM on October 4, 2010

I was coming in to recommend Paycheck City. Long story, but I've had to use them in the past to figure out my state and federal deductions (work place accountant untrustworthy) and found them to be very accurate. At the very least they'll get you in the right ballpark.
posted by kaybdc at 9:48 AM on October 4, 2010

If they employ people in other states, it is their responsibility to effect the correct withholding and submit it to the proper state (PA, in your case). My SO sometimes works in states where her company does not have an office, yet her company is required to (and does) withhold the correct amounts for any state that she works for more than two weeks in a given year.

My understanding is that it's a legal requirement of employing people in other states.

Practically speaking, it's not difficult for them to do, so I don't get why your employer is being stupid about this.
posted by wierdo at 9:53 AM on October 4, 2010

For any "normal" income level, PA has a flat 3.07% tax rate.

Take your net yearly taxable income (after FICA and medical and 401k and such), multiply it by 0.0307, then divide that by how many checks you get per year (26 or 52, most likely).

That number will err slightly on the high side (since it doesn't factor in any sort of deductions), but you'll get the difference back come April, so not really a big deal.
posted by pla at 9:54 AM on October 4, 2010

Your irritation isn't irrational, but figuring out how much you need to pay is probably easier than you think. And if you err on the side of caution the worst case scenario is you overpay your taxes and get a refund in April.

1c. If I set up a separate account to sock away money for state taxes, do I need to submit them on a more regular basis than annually?

Yes, generally you pay these taxes quarterly. (Or you could pay them all the beginning of the year or something, but the deadlines for getting the money in are quarterly.)
posted by phoenixy at 10:00 AM on October 4, 2010

The big deal here is not the rate. It's how on earth they're going to be remitting your taxes to the state of Pennsylvania if they can't even be bothered to do things like finding the applicable rate. You need to ask them how they're doing this. If they're just going to withhold at the PA rate and then send the money to Illinois, that doesn't work. You're not an Illinois employee.

Find a phone number for the PA Department of Revenue. Have HR call *them* to ask what they need to be doing. I haven't done anything with PA, but in my experience, the states I've worked with, these departments are incredibly helpful as far as helping you figure out how much you need to be withholding, what forms you need to be filing, when, whatever.

Your job is to make sure the appropriate amount gets paid to PA either way. Your job is *not* to ensure that your employer is compliant with filing requirements in the state of Pennsylvania. That's their job. If they have out of state employees who are not working in their state, they are supposed to be doing this for every single state people work in. It's the hassle of having out of state employees.
posted by gracedissolved at 10:08 AM on October 4, 2010 [1 favorite]

Ugh. HR should be handling this for you. If not, you really want to talk to an accountant (please please contact one now) and also the PA Department of Revenue. I think it will save you a lot of trouble down the line.

If your employer is not withholding for PA tax, then you probably should be making Estimated Tax installment payments to PA.

Note that will probably have to also deal with Illinois about taxes, not just Pennsylvania.

Illinois Revenue says this:

I live in another state but worked in Illinois. What state do I file with?

You will need to contact your home state for its filing requirements. As a nonresident you are required to file the IL-1040 and Schedule NR and pay tax on income earned from an Illinois source, unless you live in Iowa, Kentucky, Michigan or Wisconsin. Residents of those states are not taxed by Illinois on their wages or salaries from jobs in Illinois, and no Illinois income tax withholding is required. If your employer is withholding Illinois tax, you should fill out a Form IL-W-5-NR, Employee's Statement of Nonresidence in Illinois, and give it to your employer so they will stop the withholding, and you will need to file an Illinois return to get any withholding refunded to you. You are also required to file and pay tax on any income you earned from Illinois sources other than your wages or salary.

Here is some PA Department of Revenue contact info.
posted by gudrun at 10:31 AM on October 4, 2010

In general, you'd pay PA estimated taxes (company doesn't usually withhold unless they have business operations in the state) and file a standard PA tax return on that basis.

See this pdf.
posted by melissasaurus at 2:17 PM on October 4, 2010

gudrun wrote: "Note that will probably have to also deal with Illinois about taxes, not just Pennsylvania."

Not unless the Asker spends two weeks physically present in Illinois and working. That my SO's company is based in New Jersey does not make her a New Jersey employee, even though much of the data with which she works is stored on servers in, or passes through the corporate network in New Jersey.
posted by wierdo at 9:07 AM on October 5, 2010

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