Sponsors (2)
The bill creates a clearer, standardized rule for allocating wage taxation across States and protects taxpayers from retroactive liability (improving predictability for workers and employers) but shifts revenue and enforcement timing effects onto States and introduces new withholding timing, administrative burdens, privacy concerns, and some leftover legal ambiguity.
Multi-state workers/taxpayers: generally pay income tax only to their home State (or to a nonresident State after working there more than 30 days), reducing unexpected multi-State tax bills and simplifying individual tax exposure.
Employers and payroll administrators: standardized definitions, a clear day-count rule (including exclusion of transit time), and clearer withholding rules make payroll withholding more predictable and reduce compliance uncertainty and over-withholding.
Small businesses/employers: may rely on an employee's annual estimate of days worked (absent suspected fraud) for penalty determinations, lowering employer exposure when precise daily records are unavailable.
State governments and taxpayers: States may lose the ability to tax many nonresident workers, reducing state income tax revenue and potentially shifting tax burdens or forcing cuts to services.
Employees/taxpayers: workers who perform more than 30 days in a nonresident State may face new withholding beginning on their first day there, causing short-term take-home pay volatility.
Employers and employees: employers required to use time-and-attendance system data for withholding decisions face added administrative burden, and employees may face increased privacy concerns from mandatory use of detailed attendance data.
Based on analysis of 3 sections of legislative text.
Limits state wage taxation and withholding to the employee's residence state and any nonresident state where the employee works more than 30 days in a year, and sets related employer withholding rules.
Official title: Limit the authority of States to tax certain income of employees for employment duties performed in other States.
Introduced April 10, 2025 by John Thune · Last progress April 10, 2025
Creates a national rule limiting which states may tax wages of employees who work in multiple states: generally only the employee’s state of residence and any nonresident state where the employee is physically present and working more than 30 days in a calendar year. It also bars state income tax withholding and reporting unless the employee is taxable in that state under the new day-count rule, sets rules employers may use for withholding reliance, defines key terms (including exceptions for athletes, entertainers and certain other categories), and becomes effective January 1 of the second calendar year after enactment.