Paying State Income Tax in Non-resident States

Jan 2, 2016

  1. WCMason
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    A few months ago I got a letter from the California Franchise Tax Board demanding I file a state income tax return for income that an insurance carrier reported to them I had received there in 2013. I do not live there, am not licensed there, and never received any compensation from any carrier for policies issued there in 2013. It turns one carrier mistakenly reported that I had received commission for med sup policies issued there and after working with the carrier to resolve the error a couple of weeks ago I got a letter from the state notifying me that the issue has been resolved and no further action was required on my part.

    Beginning in 2015 I now do have a non-resident license in California and a few other states and have downline agents in a couple of non-resident states. My accountant tells me that I must file income tax returns in every non-resident state I receive commission in, assuming they have a state income tax, which I will do. He describes California as more aggressive than most at going after non-residents who earn income in their state, but that every state with a state income tax will expect a tax return for any earnings in their states.

    I know a lot of agents here on the forum do med sup telesales across state lines but I've never heard any discussion of how you handle state income tax for your non-resident income. Are you filing returns in each state that has a state income tax? Ignoring the requirement and hoping the state won't come collecting? Unaware of the requirement?
     
    WCMason, Jan 2, 2016
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  2. sirherbie
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    I've never heard of this . Many guys on here do business in 20-30 states and I'm sure none files a return in all those states. I'm sure it's just California is aggressive .
     
  3. WCMason
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    I should have added that I was told by my accountant that most states that have a state income tax also have a minimum income threshold to trigger a requirement to file. In Arizona, another non-res state for me, it's $15K gross or $11K AGI. So I may not need to file for awhile as it will take some time for overrides to reach that level.
     
    WCMason, Jan 2, 2016
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  4. sirherbie
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    I think its like the intangible tax you're supposed to pay in many states. Nobody ever pays it. I really belive if states started enforcing it then the carriers will have to break down your income per state when they 1099 you. I can see the states pt of few. You're selling something in their state and they want their cut. But the difference is we sell an intangible item.
     
  5. vic120
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    i've never heard of this. I have sold in 12 states including CA. I have never paid on NON res state income tax. Nor does that make sense, I mean you already pay income tax on the same buis to res state, If you paid income tax 2 x for each piece of buis then it would not make sense to be in buis
     
    vic120, Jan 2, 2016
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  6. sirherbie
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    Wrong how it would work is you'd pay in the state you sold it in and on your resident state income taxes you'd show that so your not double taxed
     
  7. vic120
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    I've never heard this and I have never paid anything other the res state Tax, I have paid res state tax on all my states since I started, Am I going to get screwed are they going to come after me? Why did I never hear this not form my accountant not from any of my FMO's not on this forum?

    Just seems strange I've never heard this.
     
    vic120, Jan 2, 2016
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  8. WCMason
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    Other than the hassle of filing extra returns I suppose it could benefit those who live in high state income tax states who write business in states with lower or no income tax if that income can be excluded in the resident state, which is my understanding of how it works, too.

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    As soon as I mentioned income earned from out-of-state my accountant got right into the requirement to file for non-res income there.
     
    WCMason, Jan 2, 2016
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  9. vic120
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    I have told my accountant, I went SCorp this year (2015) , Also How would anyone differentiate what is paid from what state. When I get paid I it is not separated to what is paid from each state. I would literally have to look up each client with every carrier it would be a nightmare every month

    The Funny thing is I was just thinking about how many clients I have in states I am no longer marketing and trying to decide If I wanted to not renew some states and even that seemed like a pain

    I am not arguing It's just this is the first I am hearing of this and I am trying to wrap my head around this.
     
    Last edited: Jan 3, 2016
    vic120, Jan 2, 2016
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  10. somarco
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    Employers separate earnings from more than one state when they provide you with a W2. Many years ago when I had earnings (W2) from 2 different states in the same year I got a separate state W2 for each state.

    Since I don't sell across state lines I never thought to consider if carriers do the same for 1099's. Probably not since they are not withholding taxes.

    States have gone after Amazon for their vendor partners that sell across state lines in order to collect sales taxes. Would not be surprising they would do likewise for commissions.
     
    somarco, Jan 2, 2016
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