2023 Indiana Code › Title 6. Taxation › Article 3. State Income Taxes › Chapter 2. Imposition of Tax and Deductions › 6-3-2-27.5. Exemption for Indiana Income Earned by Nonresidents

Effective 1-1-2024.
Sec. 27.5. (a) As used in this section, "compensation" means any wages, salaries, tips, or similar income that is subject to the withholding requirements under IC 6-3-4-8, or would otherwise be subject to the withholding requirements under IC 6-3-4-8 if not for the application of:
(1) IC 6-3-4-8(d);
(2) IC 6-3-5; or
(3) this section.
(b) As used in this section, "professional athlete" means:
(1) an athlete, other than a team member (as defined in section 2.7(a)(4) of this chapter) or a race team member (as defined in section 3.2(a)(4) of this chapter), who performs services in a professional athletic event for compensation;
(2) a team member (as defined in section 2.7(a)(4) of this chapter) who has at least one (1) duty day in Indiana during a taxable year; or
(3) a race team member (as defined in section 3.2(a)(4) of this chapter) who has at least one (1) duty day in Indiana during a taxable year.
(c) As used in this section, "professional entertainer" means a person who performs services in the professional performing arts for compensation on a per-event basis.
(d) As used in this section, "public figure" means a person of prominence who performs services at discrete events, including speeches, public appearances, and similar events, for compensation on a per-event basis.
(e) As used in this section, "time and attendance system" means a system:
(1) through which an employee is required, on a contemporaneous basis, to record the employee's work location for each day worked outside the state in which the employee's employment duties are primarily performed; and
(2) which is designed to allow the employer to allocate the employee's compensation for income tax purposes among all states in which the employee performs employment duties.
(f) Except as provided in subsection (j), compensation is exempt from the adjusted gross income tax imposed under this article and IC 6-3.6 if all of the following conditions are met:
(1) The individual is not a resident of Indiana at any time during the calendar year in which the employee performs employment duties.
(2) The individual receives compensation for employment duties performed by the individual in Indiana for thirty (30) days or less during the calendar year.
(3) The compensation is not paid for employment duties performed by the individual in the individual's capacity as a professional athlete, professional entertainer, or public figure.
(g) Except as otherwise provided in this section, an employer is not required to withhold taxes imposed under this article or IC 6-3.6 from compensation paid to an employee described in subsection (f). However, if the number of days that an employee performs employment duties in Indiana exceeds thirty (30) days, the employer shall withhold and remit tax to the state of Indiana from all compensation paid to the employee for every day on which the employee performed employment duties in Indiana, including the first thirty (30) days.
(h) The department may not require payment of any penalties otherwise applicable for a failure to deduct and withhold income taxes under IC 6-3-4-8, 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.
(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, if:
(A) the employer did not have actual knowledge of fraud on the part of the employee in making the determination; and
(B) the employer and the employee did not collude to evade taxation in making the determination.
An employer's maintaining of records as described in subdivision (1) does not preclude an employer's ability to rely on an employee's determination of the time the employee expected to spend performing employment duties in Indiana as described in subdivision (2) when making the determination of whether withholding is required.
(i) For purposes of this section:
(1) subject to subdivision (3), an employee shall be considered present and performing employment duties within Indiana if the employee performs more of the employee's employment duties within Indiana than in any other state during a particular day;
(2) any portion of the day during which an employee is in transit may not be considered in determining the location of the employee's performance of employment duties; and
(3) if an employee performs employment duties in the employee's state of residence and in only one (1) nonresident state during a particular day, the employee shall be considered to have performed more of the employee's employment duties in the nonresident state than in the state of residence for that day.
(j) The following apply for purposes of this section:
(1) If an individual receives compensation for employment duties performed by the individual both:
(A) in the individual's capacity as a professional athlete, professional entertainer, or public figure; and
(B) in some capacity other than the individual's capacity as a professional athlete, professional entertainer, or public figure;
the exemption under this section may not be applied to the portion of compensation described in clause (B).
(2) If an employee is working at a location other than a physical location of the employer, the employee shall be considered to be working in the state or states in which the services for the employer are performed, regardless of the physical location of the employer.
(3) If an individual performs employment duties in Indiana for more than thirty (30) days during a calendar year, compensation received by the individual is not eligible for the exemption under this section.
(4) If an individual performs substantially similar job duties for an employer both while designated as an employee and in some capacity other than as an employee during a calendar year, the number of days for which the individual shall be considered to have worked in Indiana with regard to that employer must be determined by aggregating the days for which the individual performed duties for the employer, whether designated as an employee or not.
(5) If an employer or individual reasonably believes that an individual is an employee for a calendar year but the individual is later determined to not be an employee, the individual:
(A) is subject to tax under this article and IC 6-3.6 on any income that otherwise would have been exempt under this section; and
(B) is not subject to penalties under IC 6-3-4-4.1 or IC 6-8.1-10-2.1 based on the inclusion of amounts claimed as exempt under this section as income.
(6) If an individual is not a resident of Indiana, amounts paid for vacation, sick, personal, or any other type of leave may not be considered as compensation in Indiana, and any day for which a type of leave is used may not be considered as a day for which the individual performed services for an employer unless the individual performed services for the employer in Indiana on that day and the day would otherwise be counted as a day of services performed in Indiana under this section.
(7) The exemption provided under this section shall not apply to an individual's compensation that is deferred or delayed from a previous calendar year to a subsequent calendar year unless:
(A) the individual was exempt from taxation under this section on the compensation for the calendar year in which the compensation was earned; and
(B) the individual is not a resident of Indiana when the individual includes the compensation in the individual's federal gross income.
(k) Nothing in this section may be construed to prevent an individual from being considered a local taxpayer (as defined in IC 6-3.6-2-13(2)), regardless of whether the individual's compensation is exempt under this section.
As added by P.L.194-2023, SEC.16.