Louisiana Establishes Threshold for Nonresident Income Tax Withholding

Payroll isn't what it used to be. Gone are the days when everyone worked under one zip code. Now, with nearly 30% of paid workdays happening from home, team members might cross state lines more often than they change their coffee filters, which can impact payroll taxes beyond just federal payroll taxes.

This workplace flexibility is great for employees, but it throws a real curveball at your payroll processing. Each state's tax code rulebook (distinct from federal government regulations) dictates rules for handling nonresident personal income taxes.

Get it wrong, and you're looking at possible audits, penalties, potential income tax liability issues, and the kind of paperwork headaches that keep you up at night. 

Louisiana presents a particularly tricky case with its 25-day nonresident filing threshold rule governing nonresident income tax filing and withholding, which kicked off on January 1, 2022. Note that rules for self-employed individuals differ.

This article cuts through the confusion of Senate Bill 157 (now Act 387). We're going beyond the basics to give you the nuts and bolts of what this state's individual income tax law means within the broader US tax landscape.

Understanding the Core Louisiana Rule (S.B. 157 / Act 387)

If you’re managing payroll for nonresident employees who work in Louisiana, you must become familiar with Senate Bill 157, now known as Act 387, the primary source for this rule. It's a game-changer for how you handle employee tax deductions.

The Basic 25-Day Rule Explained

In straightforward terms, Louisiana now requires state personal income tax withholding from nonresident employees' taxable income earned if they physically perform personal services or work in the state for more than 25 days within a calendar year. It is important to note that this is a separate process from federal income tax withholding.

This period is the standard taxable period tracked on an annual basis, representing a lower bar than states using 30-day thresholds. If they stay at or under 25 days in the Pelican State, you're generally off the hook for Louisiana withholding, which is calculated as a percentage tax.

But watch out—day 26 changes everything. Once they cross that line, the situation shifts dramatically.

When Did This Rule Start?

The 25-day allowable deductions came into effect on January 1, 2022, following their passage in a prior legislative session. Employers who have not accounted for these changes may need to review compliance. The threshold serves as guidance to determine whether nonresident employees are subject to Louisiana withholding.

However, not all employees qualify for this 25-day grace period. Certain professions are excluded entirely. Additionally, a provision known as the "mutuality requirement" may eliminate this protection for workers from certain states.

Defining a "Day Performing Employment Duties"

While the 25-day threshold is key, just as important is understanding how Louisiana defines a “workday.” Getting this wrong could land you in hot water with the tax folks.

Even a Quick Visit Counts as a Full Day

Louisiana doesn't mess around with partial days. Any part of a day spent working in the state counts as one full day toward that 25-day limit. Partial days are no exception.

Let's say your employee flies to New Orleans, has a two-hour meeting, and heads back home. That quick trip? It counts as a whole day.

Your employee works in Louisiana for 30 minutes on Tuesday—that's one day. Do they work all day on Wednesday? Also, one day, the state doesn't prorate based on hours worked.

What Kind of Work Matters for the Count?

When tracking work days, it’s not just regular job tasks that count. Mandatory training, team meetings, and other work-related activities in Louisiana count toward the 25-day total, impacting employment income subject to potential tax. 

Site visits, client meetings, presentations—any work-related activity performed in Louisiana counts toward the 25-day threshold.

However, social events or optional activities are excluded. Any work-related activity performed in Louisiana counts, even if it’s not part of an employee’s typical daily duties.

Is There a Minimum Time Required?

Wondering if there's a grace period or minimum time requirement? The answer is no. Unlike some tax rules that might give you a break for brief work periods, Louisiana's law doesn't specify any minimum.

Work for one hour during any period of time? That counts as a business day. Even answering work emails from your hotel in Baton Rouge technically counts as a day, too.

This is why exact tracking is essential. When every minute matters, estimates won’t be enough to ensure compliance.

When the 25-Day Rule Doesn't Apply

Now that you’re familiar with the 25-day calendar rule, here's the catch: Not all employees can take advantage of it. Some workers are subject to Louisiana withholding from day one, regardless of how briefly they worked in the state.

Jobs That Play by Different Rules

For certain professions, you can toss that 25-day counter right out the window. These folks need Louisiana income tax withheld starting from their very first workday in the state. This includes professional athletes coming to compete or practice and the support staff traveling with the athletic team.

It also applies to entertainers performing in Louisiana venues. A public figure or professional entertainer doing paid appearances in the state falls under this immediate withholding rule. Lastly, qualified production employees /film industry workers on Louisiana production sets require withholding from day one.

What This Means for Your Payroll Process

If you cut checks for people in these categories, you'll need to handle them differently. While your regular out-of-state employees might qualify for that 25-day grace period, these workers don't. You'll need to withhold Louisiana taxes from their very first day of work on income from sources within the state, just like in the pre-2022 days.

Your payroll system needs to flag these job types and apply different withholding rules to them.

The "Mutuality Requirement"

Just when you thought you had a handle on things, we need to dive into the "mutuality requirement." This isn't just a minor detail—it's a critical factor that can make or break eligibility for withholding relief under the 25-day rule.

What is This "Mutuality" Condition?

The Mutuality Condition means your employee only qualifies for the 25-day grace period if their home state has a reciprocal agreement with Louisiana. There are two ways this can happen. First, if they live in a state with no income tax—for example, Texas or Florida.

Second, their home state offers similar tax relief to Louisiana residents working there, known as the "substantially similar exclusion." If their state taxes income but doesn't provide any relief to Louisiana folks working temporarily there, they are out of luck. You can't use the 25-day rule for that employee and must withhold Louisiana taxes from day one.

Why This Gets Messy Fast

Here's where things get sticky. The Louisiana Department of Revenue, the state agency responsible, hasn't published an official list of states meeting the "substantially similar" standard. You need to know the tax laws in every state where your employees live.

Does Arizona's threshold count as "similar enough"? What about New York's? These aren't simple yes/no questions.

To complicate things further, state tax laws change. A state might qualify one year but not the next, meaning you need to stay on top of income tax filing laws and withholding changes across multiple states. And if audited, the burden's on you to prove you got it right.

You'll need documentation confirming the employee's residency status and why you believed their home state qualified. This determination also impacts their ability to claim tax credits when filing.

The Bottom Line on Mutuality

This mutuality clause limits withholding relief, increasing the responsibility for businesses. Now, you’re comparing state tax laws and making nuanced judgment calls impacting filing requirements. For most payroll teams, this means extra homework, possibly bringing in tax experts, and more paperwork.

Retroactive Withholding—The Critical Calculation

You've been tracking your employee's days in Louisiana. They hit day 25, and everything's fine. Then, they work on the 26th day. Now what?

What Happens When They Hit Day 26?

When your employee crosses that 25-day line, a switch flips, potentially establishing an income tax nexus. Suddenly, you face a legal obligation for withholding Louisiana income tax, potentially impacting your final income tax liability.

It's Not Just Moving Forward, It's Looking Back

The moment they work that 26th day, the tax payment requirement applies via withholding for ALL days they worked in Louisiana that year. The employer is required to go back and figure out the withholding for those first 25 days previously ignored.

The Math Gets Messy

This backward-looking requirement can create significant headaches. First, dig through past wage reports or payroll records to determine what the employee earned specifically as Louisiana-sourced income while working those earlier days. 

Then, calculate the correct withholding amount based on their L-4 form to cover potentially unpaid taxes.

This calculation must account for their filing status (e.g., single filers, married filing) and personal, plus any additional exemptions (allowances) claimed for state, not federal income tax purposes. 

Finally, add this makeup amount to their regular withholding for the current period to ensure correct tax payments. Doing this manually gets overwhelming fast.

Why Your Payroll System Makes All the Difference

This is why basic payroll systems fall short for companies with mobile workers. You need payroll tax software that tracks work locations daily and flags when someone nears the 25-day mark. The system must also handle complex look-back calculations automatically, applying the correct Louisiana payroll tax rates.

Practical Steps for Employers to Stay on the Right Side of Louisiana's Rule

Let's focus on how your company, whether managed by payroll pros or business owners directly, can handle this specific rule among its other business tax obligations in real life. You need to know where your people's physical presence is at work each day, not just roughly, but exactly. You need reliable, up-to-date records that track work across various business locations in Louisiana.

Consider GPS-enabled time tracking apps, secure VPN logs (if they reliably show physical location), detailed travel records, or manager sign-offs. Don't wait until someone hits day 26. Set up your systems to flag when employees are getting close—maybe at day 20—giving your payroll team time to prepare.

You'll need a solid process to deal with that tricky mutuality requirement. Start by collecting and verifying employees' legal home addresses. Then create a process for figuring out if their home state qualifies.

Your payroll system needs special settings. Can it track location data daily, flag thresholds, and calculate retroactive withholding accurately? Can it handle potential deposits required on a monthly basis?

Prepare your audit defense now to avoid potential tax liability adjustments. Keep records showing daily work locations, mutuality analysis, and withholding calculations, as state revenue departments may inquire, along with any additional details requested.

Payroll Compliance in Louisiana

Louisiana's 25-day rule is a whole package requiring attention to workday definitions, exclusions, mutuality, and retroactive calculations to ensure correct tax revenue collection as part of Louisiana employer payroll taxes. For your payroll team, these rules mean more paperwork, tracking complexities, and risk. Mistakes impact employee income tax returns.

This is where reliable technology can save you. Smart payroll tax tools with solid tax engines and location tracking—like what Symmetry offers—help automate these tasks. Our platform tracks locations, applies exceptions, and handles complex calculations when someone crosses that 25-day line.

It lets your team focus on growth, turning a compliance nightmare into just another Tuesday, a benefit for both in-house teams and external tax preparers. Take time to look at your current Louisiana withholding process. Check the Louisiana Taxpayer Access Point (LaTAP) for official forms and LDR guidance.

Then, check out what payroll compliance technology could plug those holes before they become expensive problems. Remember, this guide provides information for informational purposes only and does not constitute specific tax or legal advice.

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