When an employee lives and works in the state your company is headquartered in, state withholding and unemployment taxes are paid to the state everything is happening in. Everybody in Virginia all the time? Easy-peasy - withhold in Virginia. Everybody in Florida (or Tennessee) all the time? Even easier - no withholding taxes!
When you have employees who live in one state and work in another, however, things can get a little bit tricky. Employers who commonly run into this scenario are those who:
- Are located near state borders,
- Have employees travel to job sites in other states,
- Have employees work remotely,
- And/or are expanding into new states.
If your company's business (and employees) don't fall into the easy-peasy categories, having some basic understanding of the rules of thumb can help you make the right decisions about classifying their wages and avoid penalties/amended filings later on.
Make sure to maintain accurate records in iSolved for employee residence and work locations. The employee's Residence Location will auto-populate based on their address in Employee Maintenance > General. The employee's Work Location is selected on the Employee Pay > Tax Information screen.*
*If you need to add a new Work Location to your options, please contact DP Customer Service. Include the zip code of the employee's work location in your request.
Rule of thumb? Both the state unemployment tax and withholding tax should generally be paid to the employee's work state, but there are exceptions!
Reciprocity: Some states that border each other have entered into agreements related to allowing an employee who lives in one state but works in a neighboring state to have their withholding tax paid to the work state. (Example: An employee who lives in Maryland but commutes to northern Virginia or DC for their job can have their withholding tax paid to MD rather than the work state.) For more information on reciprocity, click here.
Unemployment Tax State Determination: When an employee is working in multiple states (or working remotely for a company based in another state), you can use some basic rules of thumb for determining which state to pay the associated unemployment taxes to. See this article for a comprehensive look!
If you find that you need to set up tax accounts in a new state, we have compiled resources for you on that as well!