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PrintKnow Where Your Employees Are by Navigating Multi-State Tax Rules
In March 2020, the COVID-19 pandemic ambushed the world’s workforce, and U.S. employers were faced with making an unprecedented move to send their employees home to work. As a result, payroll departments came to two realizations.
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- Payroll could continue to operate at a high rate of efficiency while working away from the office.
- If employees didn’t have to be at the office, they could be anywhere they chose to relocate.
Employees supposedly worked from “home”—wherever that might have been—and that left many payroll professionals wondering how to tax the earnings of employees working in so many different locations.
PayrollOrg has many resources to help, including the publication, Guide to State Payroll Laws, and a virtual online course, Payroll Issues for Multi-State Employers.
What These Resources Do
State legislatures leverage their autonomy to create tax laws reflecting the interests of their constituents. Thus, payroll departments must research the tax laws of every state where their employees reside or may travel to work for the employer. This sounds impossible—it is not.
The legal editors at PayrollOrg researched and contacted each jurisdiction to determine their laws relating to taxes and other deductions payroll departments are required to make, and diligently monitor for legislative changes throughout the year.
The Guide to State Payroll Laws publication offers comprehensive reference material that is handily available in your payroll library anytime. The virtual course Payroll Issues for Multi-State Employers provides a comprehensive study of taxes in each state and explains the impact to your employees, whether they are working from a specific remote location or traveling and working along the highways and byways of the United States. The course also provides interactive questions about state payroll tax laws.
Tackle Multistate Madness
A company, for example, headquartered in, Connecticut has an employee who lives in Camden, New Jersey. The employee is a salesperson whose sales region covers Delaware, the District of Columbia, Maryland, New Jersey, Long Island, New York, and parts of Connecticut, and she continually travels to each of these locations throughout the year. How do you withhold state income tax from this employee when all six of these jurisdictions have income tax? Do you:
- Withhold from all six locations?
- Withold only from Pennsylvania where the company is located?
- Withhold only from New Jersey where the employee lives?
- Have a choice where taxes are withheld?
The Payroll Issues for Multi-State Employers course provides detailed instruction about situations addressing the taxation of employees who work in multiple states. It offers a basic default rule that employers can count on in most cases to determine which jurisdiction requires income tax withholding.
That sounds easy—it is not. The basic rule carries three variant rules that may apply depending on where an employee lives or is domiciled in connection with where an employee works or provides services for the employer.
Many U.S. states have laws defining a resident of the state, helping employers to determine whether an individual is a resident of the state where the employee is working or is considered a nonresident of that state. States have certain requirements pertaining to the inclusion of state income tax as it applies to residents, and other requirements when workers are nonresidents of the state.
Different tax regulations depend on those two definitions and, unfortunately, those definitions vary from state to state.
Another factor determining taxation is reciprocity agreements where two or more states agree to cooperate with one another about which state is to be the tax-withholding state. These agreements may cause employers to literally ignore the basic default rule and tax employees based on such reciprocal agreements.
The reciprocity rule is designed to make an employer’s taxation decision easier—and it does. However, only a limited number of states have such agreements, so most of the states are not as friendly to employers.
Every Angle Covered
There are other dimensions of Payroll Issues for Multi-State Employers that are just as vital to employers as income taxes when working with employees who work in multiple states.
To which state do you report and pay state unemployment insurance taxes on traveling workers? How do you know you are compliant with state minimum wage laws and tipped employee requirements in each state where your employees work?
It is mandatory to report newly hired employees to state jurisdictions. To which states do you report them? All these complex questions will be answered.
This course is presented by PayrollOrg as a one-day, six-hour interactive course and a four-segment 90-minute webinar, both in April. See the “Education Schedule” link from the “Education” tab on Payroll.Org or the Education Calendar in the March issue of PAYTECH for dates and details.
We invite you to register for Payroll Issues for Multi-State Employers so when your employees tell you in late December that they should have been taxed all year long based on their remote work location, you will know precisely how to compliantly tax them.
Larry White, CPP, is a Director of Payroll Training for PayrollOrg.
For more articles like this, read PAYTECH magazine (available in both printed and digital formats), free for PayrollOrg members!
PayrollOrg (PAYO), is the leader in payroll education, publications, and training. This nonprofit association conducts more than 300 payroll training conferences and seminars across the country each year and publishes a complete library of resource texts and newsletters. Representing more than 20,000 members, PAYO is the industry’s highly respected and collective voice in Washington, D.C. Get more information at www.payroll.org.
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