Are payroll taxes based on where you live or work?
When it comes to tax withholding, payroll primarily follows the rules of the state where the work is performed. Without a reciprocity agreement, taxes may need to be withheld in both the state in which work is performed as well as the residence state. Check with your state Tax or Revenue Department for details.
How do taxes work if my employer is in a different state?
In order to properly take advantage of the agreement, you must tell your employer to withhold taxes based on your state of residence rather than the state where you work. In this situation, you would need to ask your employer to withhold income tax in the state where you work and the state where you reside.
Can you be a resident in one state and work in another?
A reciprocal agreement, or reciprocity agreement, is a tax agreement that neighboring states can enter into with one another. It allows residents of either state to work in the neighboring state, usually without needing to file a nonresident tax return.
What is considered a remote employee?
A remote employee is someone who is employed by a company, but works outside of a traditional office environment. This could mean working from a local coworking space, from home, at a coffee shop, or in a city across the world.
Do I pay taxes in both states if I live in one and work in another?
In order to properly take advantage of the agreement, you must tell your employer to withhold taxes based on your state of residence rather than the state where you work. If you don’t do this, you’ll continue to be taxed by both states and forced to fill out two state tax returns.
When does an employer have to pay an employee for commuting?
Employees choose where to live, and their commuting times may range from a few minutes to more than an hour. If such an employee is infrequently required to travel a substantial distance to an alternate worksite, the employer will likely have to pay wages for the extra drive time (infrequent travel is unlikely to be viewed as “ordinary” commuting).
How does tax withholding work for out-of-state employees?
When it comes to tax withholding, payroll primarily follows the rules of the state where the work is performed. If employees who live out of state come to your business for work, payroll would follow the withholding rules for the state where your business is located. These employees may owe income tax to their state of residence.
What happens if my employees work from home in a different state?
If your employees work from home in a different state for number of days that exceeds the established threshold for that state, the employer must generally recognize the change and begin to submit taxes to the state where the employee is working, not where the business is located.
What are the tax requirements for an employee with multiple states?
The employee has to have state tax withheld on the state where the income is earned. If the employees lives in another state, they must file two state tax returns and claim a state tax credit, if the state has reciprocity.