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Indiana Enacts Legislation Impacting Income Tax on Non-Residents and Tax Withholding Penalties

06/01/23

Author: ADP Admin/Tuesday, May 30, 2023/Categories: Compliance Corner

Indiana has enacted S419, which impacts tax withholding on non-residents and penalties in relation to deficient tax withholding by employers.  

The Details: 

Tax Withholding on Non-Residents

As of January 1, 2024, compensation received by a non-resident of Indiana in relation to their employment duties performed in the state for 30 days or less during the calendar year is exempt from the state’s adjusted gross income.

However, the exemption does not apply to compensation received for duties performed in the individual’s capacity as a professional athlete, professional entertainer, or public figure.

Withholding Tax Penalties  

Effective January 1, 2024, the Indiana Department of Revenue may not require the payment of any penalties otherwise applicable for a failure to deduct and withhold income taxes if, when making the determination of whether withholding was required, either of the following applied:

(1) the employer relied on a time and attendance system maintained by the employer specifically designed to allocate employee wages for income tax purposes among all taxing jurisdictions in which the employee performs employment duties for the employer; or

(2) the employer did not maintain a time and attendance system and the employer relied on the employee's annual determination of the time the employee expected to spend performing employment duties in Indiana. The second part applies if the employer did not have actual knowledge of fraud on the part of the employee in making the determination and the employer and employee did not collude to evade taxation in making the determination.

Next Steps:

Employers in Indiana should review the provisions of S419 and make any necessary adjustments prior to January 1, 2024.

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