Payroll Taxes for Out-of-State Employees Bench Accounting

payroll taxes for employees working out of state

Business Insurance Comprehensive coverage for your business, property, and employees. If you’re running your own payroll, you’ve probably established checks and balances to help make sure your business stays in compliance and you’re paying your employee taxes correctly. In many states, having an employee or any official presence in that location triggers sales tax nexus for your organization. This is further complicated by local tax jurisdictions, such as counties and cities. As 1099 contractors aren’t employees, they must pay their taxes as an independent business to their state of residence . Your employee will need to complete a non-residency certificate to excuse them from tax withholding in their work state.

  • You also have a second office in New Mexico, where you employ three New Mexico residents.
  • Additionally, remote work classifications are different based on a company’s location, where an employee lives, and where an employee works.
  • Whether you operate in multiple countries or just one, we can provide local expertise to support your global workforce strategy.
  • You should check with each state you have employees in to see what taxes you are responsible for.
  • Reach out to Prithi Daswani CPA if you need help ensuring compliance—and avoiding any costly penalties or fees down the road.

In some cases, though, an employee may need to file non-resident tax returns. Suppose your temporarily remote employee typically works in the same state or location as your organization but is currently working remotely in another state. It’s expected that temporary remote workers will return to their permanent location. Otherwise, they’re considered a permanent resident of the other state. If you have employees who recently moved to a new state and worked remotely, they’ll need to establish a new domicile, or permanent residence, to avoid being taxed in their current and former states. Many states will audit former residents to determine if they are no longer a resident.

Understanding Payroll Taxes for Out-of-State Employees

Again, you withhold and remit state taxes for the state where the employee works. For the three months of training, you must withhold taxes for South Carolina even though the employee lives and primarily works in North Carolina. HR does not need to know if an employee has an infrequent occasion when they are out of state on business or personal travel and perform occasional or infrequent work for NAU in that situation. However, the more frequently that this occurs in a particular state other than Arizona, Human Resources needs to know in order to determine if out of state employment laws and other tax requirements apply.

Do I have to pay California taxes if I work remotely in another state?

Remote workers do not have to file nonresident state tax returns unless they physically travel to another state and perform work while they are there. In certain cases, a reciprocity agreement may protect workers from taxes in different states. Not all states levy a state income tax.

Now, let’s say you have an employee who lives in Missouri but works exclusively in Arkansas. Even though the employee lives in the state where your business is located, you must withhold taxes for Arkansas because that is the work location. State income taxes get even more complicated when you have an employee who lives and works in different states, works from home in a state where your business isn’t located, or travels for work.

Do I still file Statewide Transit Tax with the Department of Revenue?

Only some states have state tax reciprocity agreements and only with certain states. Some states have low taxes, some have high taxes, and some states don’t have income taxes at all. If you pay for commercial annuities, employer-deferred compensation plans, or retirement plans, you must withhold tax, unless the employee or payee chooses to have no withholding. You must file an Oregon Annual Withholding Reconciliation Report, Form WR, even if you submit your W-2 information electronically.

Do I have to pay local taxes if I work remotely?

You'll pay unemployment taxes and report their income to the states where they live, not your state. However, some states use “convenience of employer” rules that require you to pay taxes in your state, not the employee's state.

Startups and small businesses are taking advantage of new online payroll providers. These give owners the tools to handle both payroll and taxes for their remote workers at a much more affordable price point. Local tax withholdings mostly follow state tax guidelines, but there are some adjustments. In this scenario, your payroll and HR manager must examine each city and state’s nexus policy to determine if the organization is eligible for nexus within the state or city. When you register with each state’s tax or unemployment agency, you’ll receive information on the unemployment tax rate and instructions for paying state tax returns around unemployment.

About Oregon

In some cases, registering for withholding in a second state can cause you to receive inquiries from that state about other taxes for which you are not liable, such as sales tax or corporate income tax. In some states, withholding and paying over taxes can make your company liable in the courts of that other state. Consider consulting your legal and tax advisors before making the decision to withhold taxes for a state other than your primary work state. As of January 1, 2018, all employers are required to electronically file employment tax returns, wage reports, and payroll tax reports. For more information on this requirement, visit E-file and E-pay Mandate for Employers. Thus, if an employer has employees who are living and working in multiple locations the employer must also stay abreast with any potential local income taxes that need to be withheld for those employees.

payroll taxes for employees working out of state

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California Personal Income Tax is withheld from employees’ wages and credited toward the amount due for the employees’ annual California state income tax. But in some states, like Alaska, New Jersey, and Pennsylvania, you’ll need to withhold SUTA taxes from employees’ wages and remit them to the state. Most payroll solutions can simplify this task for you by handling multi-state payroll taxes. With so many people working from home, employers and state governments face new challenges regarding taxation, nexus, and employee benefits.