Payroll Concerns for Remote Employees
Generally, the employer must withhold income tax in the state where work is performed (there is an exception that is explained later). If an employee who resides in another state works exclusively in that state (different from the employer’s state), then taxes are usually withheld only in the employee’s state. (The employer is in State A and the employee lives in State B and does all the work for the employer in home State B, so the employer should withhold State B tax for the employee, assuming State B has an income tax.) I say “usually” because there are exceptions that permit the employer not to withhold state income taxes in the employees’ state. If the employee resides in the employer’s state, tax for that state must be withheld even though the employee works exclusively in another state. And there may be additional withholding obligations in the state in which the employee works. Already confused? If an employee works a few days in each location, things become even more compl