State tax agencies auditing licenses
Joseph Smith's monthly column
Joseph Smith EA is the leading tax expert in the country for traveling healthcare professionals and agencies, and happens to be PanTravelers CFO. A former traveling respiratory therapist, he now has a thriving tax preparation and consulting business. He is also a regular contributor to Healthcare Traveler magazine and is a helpful presence on traveler forums such as Travel Nurses & Therapists. Joe maintains one of the best traveler resources at traveltax.com.
With the current economic crisis and declining tax revenues, many states are raising taxes, stepping up enforcement or both. One enforcement method that is becoming popular is to request a list of individuals holding professional or occupational licenses from the state boards and checking for a tax return filing.
Typically, state tax agencies will become aware of any income earned in its borders through the W-2 that the employer files. However, income of travelers that may be state taxable can missed from just W-2 reporting. For example:
- Taxes may apply from out of state earnings as the residency status of the professional cannot be determined by W-2 reporting alone.
- Independent contracting (1099) income is usually reported at the Federal level, but rarely at the state level, and
- Agencies sometimes report earnings to the traveler’s home state instead of to the work state.
When a state tax office selects an individual with an active license and no return is found, the agency will send a letter to the license holder asking for a tax return or an explanation as to why a return has not been filed. If no response is given within the prescribed time, the tax office will obtain income information of the license holder from a return filed with the IRS and assess state taxes on the entire amount of income reported on the tax return as if they were a full year resident. A letter will be sent outlining this assessment and if the licensee is still silent, the assessment will be sent to collections.
Many travelers are unaware of the mailings due to frequent relocation or mail forwarding blunders. The final step in this process is to revoke or suspend the professional license of the “delinquent” taxpayer when there is no response to the collections notice.
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