How to Remain in Compliance when Payrolling in Multiple States
Posted on June 3rd, 2016 Read time: 2 minutes
Darlene Bruder – Vice President of Operations
Providing Payroll across multiple states may present many unknowns and raise various questions. Below is a sampling of questions that might come to mind. I have only listed 10 questions here, as there are many others we can explore at another time.
- What state do I report my Unemployment tax to?
- What state do I report Workman’s Compensation to?
- What state do I report my employees’ State withholding to?
- Are there any local taxes applicable to the employees’ work site?
- How do I know if local taxes apply to the employees’ work site or residence jurisdiction?
- When do I follow State Wage and Hour Laws and when do I follow Federal Wage and Hour Laws?
- How soon do I need to pay an employee when they leave their position or have been terminated?
- What is the minimum I can pay an employee as an hourly non-exempt employee?
- What is the minimum I can pay a Salary Exempt employee?
- How often must I pay my employee?
As an Employer of Record, employing people in all 50 states and the District of Columbia, I would like to provide some insight into the first three questions above. How do we know where to report employee and employer state related taxes?
If an employee works and lives within the same state this question can pretty easily be answered; you simply report your employee’s wages and various taxes, both employer and employee, to that state.
Where it becomes a little tricky is when your employee works in a state they do not live in.
As an employer the Unemployment tax and Workman’s Compensation tax are always reported to the state in which the employee performs their work, regardless of where your business is located or where the employee lives.
Employee State taxes are a little more complicated. All but 9 states currently impose a personal income tax on all income earned in the state, even if earned by a non-resident. Fifteen states have Reciprocal Agreements or Reciprocities with other states. A state Reciprocal Agreement or Reciprocity is when the states agree not to have their state taxes imposed on a non-resident employee performing work in that state. Some states do require a special withholding form to be completed by the employee to exempt them from the work state’s taxes.
Below I have listed three of the states along with the states they have reciprocities with as a reference.
- Illinois has a reciprocity with 4 states (IA, KY, MI and WI)
- Indiana has a reciprocity with 5 states (KY, MI, OH, PA, WI)
- Virginia has a reciprocity with 4 states and District of Columbia (KY, MD, PA, WV)
Therefore if a resident of Michigan works in Illinois, based on the reciprocity between the two states, you should withhold the residence personal income tax for Michigan and report the withholding to Michigan.
This information assumes you are legally established within the various states as an employer, which in its self can generate several questions and encompass a fair amount of work. By using an experienced employer of record, like Innovative Employee Solutions, Inc. who is legally established in all 50 states and the District of Columbia as an Employer, you can save time and eliminate the risk of improper withholding and reporting as you branch out into different states where your expertise is needed.
To learn more, reach out to the friendly experts at Innovative Employee Solutions for further guidance today.
See more at – https://www.innovativeemployeesolutions.com
Related Articles
Posted on June 3rd, 2016 Read time: 2 minutes
Darlene Bruder – Vice President of Operations
Providing Payroll across multiple states may present many unknowns and raise various questions. Below is a sampling of questions that might come to mind. I have only listed 10 questions here, as there are many others we can explore at another time.
- What state do I report my Unemployment tax to?
- What state do I report Workman’s Compensation to?
- What state do I report my employees’ State withholding to?
- Are there any local taxes applicable to the employees’ work site?
- How do I know if local taxes apply to the employees’ work site or residence jurisdiction?
- When do I follow State Wage and Hour Laws and when do I follow Federal Wage and Hour Laws?
- How soon do I need to pay an employee when they leave their position or have been terminated?
- What is the minimum I can pay an employee as an hourly non-exempt employee?
- What is the minimum I can pay a Salary Exempt employee?
- How often must I pay my employee?
As an Employer of Record, employing people in all 50 states and the District of Columbia, I would like to provide some insight into the first three questions above. How do we know where to report employee and employer state related taxes?
If an employee works and lives within the same state this question can pretty easily be answered; you simply report your employee’s wages and various taxes, both employer and employee, to that state.
Where it becomes a little tricky is when your employee works in a state they do not live in.
As an employer the Unemployment tax and Workman’s Compensation tax are always reported to the state in which the employee performs their work, regardless of where your business is located or where the employee lives.
Employee State taxes are a little more complicated. All but 9 states currently impose a personal income tax on all income earned in the state, even if earned by a non-resident. Fifteen states have Reciprocal Agreements or Reciprocities with other states. A state Reciprocal Agreement or Reciprocity is when the states agree not to have their state taxes imposed on a non-resident employee performing work in that state. Some states do require a special withholding form to be completed by the employee to exempt them from the work state’s taxes.
Below I have listed three of the states along with the states they have reciprocities with as a reference.
- Illinois has a reciprocity with 4 states (IA, KY, MI and WI)
- Indiana has a reciprocity with 5 states (KY, MI, OH, PA, WI)
- Virginia has a reciprocity with 4 states and District of Columbia (KY, MD, PA, WV)
Therefore if a resident of Michigan works in Illinois, based on the reciprocity between the two states, you should withhold the residence personal income tax for Michigan and report the withholding to Michigan.
This information assumes you are legally established within the various states as an employer, which in its self can generate several questions and encompass a fair amount of work. By using an experienced employer of record, like Innovative Employee Solutions, Inc. who is legally established in all 50 states and the District of Columbia as an Employer, you can save time and eliminate the risk of improper withholding and reporting as you branch out into different states where your expertise is needed.
To learn more, reach out to the friendly experts at Innovative Employee Solutions for further guidance today.
See more at – https://www.innovativeemployeesolutions.com
