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April 19, 2021
2021-0799

West Virginia law eases income tax burden for employees working temporarily in the state

On April 9, 2021, West Virginia Governor Jim Justice signed into law H.B. 2026, which effective January 1, 2022, provides relief from income tax for employees working temporarily within the state.

The legislation, which also includes other tax reforms, was enacted in support of "Ascend WV," a program to recruit remote workers to the state. (Governor Justice press releases, February 18, 2021 and April 12, 2021.)

Income tax exclusion for temporary employment within West Virginia

HB 2026 adds West Virginia Code §11-21-31, which provides that wages paid to a West Virginia nonresident are exempt from income tax and withholding if:

  • The compensation is paid for employment duties performed by the individual within the state for 30 or fewer days in the calendar year.
  • The individual performed employment duties in more than one state during the calendar year.
  • The compensation is not paid for employment duties performed by the individual in the individual's capacity as a professional athlete, professional entertainer, or public figure.
  • The nonresident individual's state of residence provides a substantially similar exclusion or does not impose an individual income tax, or the individual's income is exempt from taxation by West Virginia under the United States Constitution or federal statute.

Employees are considered present and performing employment duties within the state for a day if they perform more duties in West Virginia than in any other state during that day. Any portion of the day

during which the employee is in transit is not considered in determining the location of an employee's performance of employment duties.

If the number of days during the calendar year exceeds the 30-day threshold, the employer is required to withhold West Virginia income tax on wages earned for all days in the calendar year the nonresident employees performs services within the state, including the first 30 days.

Employer recordkeeping requirements

If the employer maintains a time-and-attendance system that tracks where employees perform services on a daily basis, then data from the-time-and-attendance system must be used. A qualified time-and-attendance system:

  • requires the employee, on a contemporaneous basis, to record the work location for every day worked outside of the State where the employment duties are primarily performed
  • is designed to allow the employer to allocate the employee's wages for income tax purposes among all states in which the employee performs services

If there is no qualified time and attendance system, the employer must obtain a written statement from the employee of the number of days reasonably expected to be spent performing services in West Virginia during the tax year.

Absent the employer's actual knowledge of fraud or gross negligence by the employee in making the determination, or collusion between the employer and the employee to evade tax, the certification made by the employee and maintained in the employer's books and records is prima facie evidence and constitutes a rebuttable presumption of the number of days spent performing services in West Virginia.

Ernst & Young LLP insights

West Virginia joins 27 other states that provide a de minimis exception from their nonresident income tax requirement based on number of days or earnings.

For several years, the US Congress has unsuccessfully attempted to enact federal legislation that would relieve businesses and their employees of the burden that nonresident income tax imposes for short-term business travel. (See EY Tax Alerts 2020-1619 and 2020-2113.)

For information about the other tax reforms contained in HB 2026, see EY Tax Alert 2021-0775.

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Kristie Lowery (kristie.lowery@ey.com)
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Debera Salam (debera.salam@ey.com)

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