How to Handle Multi-State Remote Employee Payroll Taxes in Five Procedures
Withholding for a remote employee generally follows the state where the work is performed, but the employee’s home state, a reciprocity agreement, a convenience-of-the-employer rule, or a local tax can change the answer. Unemployment insurance follows a separate coverage test. This guide covers multi-state remote employee payroll tax compliance in five procedures, from recording where each person works to matching filings and deposits to each state registration.
What state and local payroll taxes cover
Payroll taxes for employees in different states fall into four families, which are state income tax withholding (sometimes a city or county tax), unemployment insurance, state benefit programs, and local taxes. FICA and FUTA are federal, and IRS Publication 15 covers federal taxes only and points employers to the state or local tax department. State benefit programs sit outside this guide.
How to record and verify where each person works
Run this procedure at hire, when hybrid days begin in a new state, and when an employee moves. Practitioners use the word nexus, while state payroll agencies state duties in terms such as wages paid, weeks employed, or work performed. The California Employment Development Department gives one example, saying an employer must register within 15 days if it hires employees and pays more than $100 in wages in a calendar quarter.
What you need first
* Obtain the start date and planned schedule, including hybrid days.
* Locate any system that records days worked by state.
1. Record the home address and each work address, with the state, city, and county for each.
2. Log days worked in each state as they happen, including hybrid and travel days.
3. Compare the day counts with any short-stay threshold the work state sets, as of October 2026. The New York Department of Taxation and Finance imposes no penalty for not withholding New York tax on a nonresident whose primary work location is outside New York if 14 or fewer New York days are reasonably expected and not exceeded. Any part of a day counts as a full day, some pay types are excluded, and the employer withholds on wages after day 14. Illinois Publication 130 says a nonresident with fewer than 31 days of Illinois service whose pay is not localized in Illinois is not subject to Illinois withholding, and service over 30 days needs Form IL-W-6 unless a time system records locations contemporaneously and allocates wages. The Indiana Department of Revenue says an employer need not withhold state or county tax on a nonresident employee reasonably expected to work in Indiana 30 days or less in the year if its time and attendance system records out-of-state location contemporaneously and allocates pay between states, or the employee gives Form WH-4AFF. Under the time and attendance path, working more than 30 days triggers withholding on the first 30 days too.
4. Ask the employee to confirm each address in writing, and store the dated record in the payroll file.
What a correct result looks like
A dated record for each employee listing the home address, each work location with its state, and the days worked in each state.
How to decide withholding when the work state and home state differ
Run this procedure at hire and whenever an employee’s work state or home state changes. The convenience rules and reciprocity pairs below are as of October 2026.
What you need first
* Pull the dated work-location record.
* Identify the employee’s home state and each work state.
1. Start with the work state, because withholding generally follows the state where the work is performed. The California Employment Development Department says California withholds only on a nonresident’s wages earned in California, prorated by working days. The Vermont Department of Taxes prorates a nonresident’s wages by hours when the nonresident works in Vermont and elsewhere, and the Pennsylvania Department of Revenue requires withholding from nonresidents for services in Pennsylvania. Collect the work state’s withholding certificate if the state has its own.
2. Check what the home state requires. California, Pennsylvania, and Vermont also require withholding for their residents who work elsewhere, and California and Vermont reduce it by the other state’s withholding. The New York Department of Taxation and Finance says employers that maintain an office or transact business in New York withhold New York tax for New York residents even when the work is performed outside New York. An out-of-state employer not incorporated or licensed in New York, with no New York office or business, is not required to withhold on New York-resident employees but may agree to. Pennsylvania’s telework guidance says an out-of-state employer whose only Pennsylvania connection is an employee teleworking full-time from home in Pennsylvania is not required, but may, withhold.
3. Check convenience-of-the-employer and required-telework rules. Under New York memo TSB-M-06(5)I, a nonresident’s normal home-office days count as New York days when the employee’s assigned or primary office is a New York employer office, unless the home office is a bona fide employer office. Pennsylvania treats pay of a nonresident required to telework full-time from home in another state as non-Pennsylvania-source even when the employer is in Pennsylvania, and that employer need not withhold. New Jersey has no convenience rule of its own, and under P.L.2023, c.125 it applies a nonresident’s home-state convenience rule to wages from a New Jersey employer. The New Jersey Division of Taxation names Delaware, Nebraska, and New York as examples, says the list may change, and excludes Pennsylvania and Connecticut residents.
4. Check for a reciprocity agreement between the two states. Pennsylvania’s REV-415 Employer Withholding Information Guide lists reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. The New Jersey Division of Taxation says New Jersey and Pennsylvania residents are exempt from the other state’s income tax on compensation, with Form NJ-165 given by Pennsylvania residents to New Jersey employers and Form REV-419EX given by New Jersey residents to Pennsylvania employers. Virginia Tax exempts wages of Maryland, Pennsylvania, and West Virginia residents present in Virginia 183 days or fewer with no Virginia abode, using Form VA-4 recertified every year.
5. Collect the claim form and keep it. The employee gives the work-state employer the form for that state pair, and who then withholds home-state tax differs. A Virginia resident working in a reciprocity state may ask the employer to withhold Virginia tax or, if the employer will not, pay estimated tax. In Pennsylvania, once a reciprocity-state resident files the nonwithholding certificate (Form REV-419, which the New Jersey page lists as REV-419EX), the employer withholds the resident state’s tax and pays it to that state.
6. Record the agreement name, form edition, and effective date, and check both states’ pages every year.
What a correct result looks like
Withholding is configured for the correct state or states, with the basis documented.
How to handle local payroll taxes
Some localities impose their own income or payroll tax, so check each locality and its agency. Run this procedure at hire and whenever an employee’s work locality changes.
What you need first
* Pull the city and county for each address.
* Locate each locality’s tax agency.
1. Check Ohio municipalities. Under ORC 718.011, an employer is not required to withhold municipal income tax for services in a municipality if the employee worked there 20 or fewer days in the year, unless the principal place of work is there, it is a presumed worksite, the resident asked for withholding, or the employee is a professional athlete, entertainer, or public figure. A day counts only if more time was spent there than in any other municipality that day, and after day 20 the employer withholds for later days. Under ORC 718.03, an employer located or doing business in a taxing municipality withholds on qualifying wages earned there, and withholds for the resident municipality only on request.
2. Check Indiana counties. The Indiana Department of Revenue says the state and county taxes withheld from employee wages are reconciled together on Form WH-3. Under Departmental Notice 1, the county of residence, or for an out-of-state resident the county of principal work, is determined on January 1 of the calendar year, so a mid-year move does not change the county withheld for.
3. Check Pennsylvania Act 32. The Pennsylvania Department of Community and Economic Development says employers withhold the higher of the employee’s resident earned income tax or the nonresident earned income tax at the work location and remit to the workplace tax collector within 30 days after each quarter.
4. Check Philadelphia. As of October 2026, the Philadelphia Department of Revenue says residents owe the wage tax wherever they work, and nonresidents who work in Philadelphia owe it.
5. Record each locality, rate, and account in the employee’s payroll file.
What a correct result looks like
Each employee’s record lists the locality for each address and the local withholding applied.
How to apply the unemployment insurance coverage test to a multi-state worker
Workers are generally covered by the unemployment insurance law of the state where the work is performed, according to the U.S. Department of Labor’s 2023 Comparison of State Unemployment Insurance Laws. Unemployment insurance, which payroll teams also call SUTA, applies a localization test from state law, using DOL’s model language in guidance UIPL 20-04. It is not a FUTA test, and its aim is to cover all of an individual’s service for one employer under one state’s law. Run this procedure at hire and whenever a worker’s work state changes.
What you need first
* Pull the dated work-location record, including days worked in each state.
* Gather the worker’s state of residence.
1. Ask whether the service is localized in one state. Under DOL’s localization guidance, service is localized when it is performed entirely in the state, or both inside and outside the state with the outside service incidental, for example temporary, transitory, or isolated. DOL says service longer than 12 months “would not generally be considered incidental,” with flexibility.
2. Ask which state holds the individual’s base of operations if the service is not localized. The base is the individual’s fixed center from which work starts and to which the individual returns for instructions, separate from the place of direction or control.
3. Ask which state the employer directs or controls the work from if the base-of-operations test does not apply.
4. Use the state of residence if neither applies. The base, direction-or-control, and residence tests each apply only if some service is performed in that state.
5. Check for an election if no test fixes one state. Most states let the employer, the employees, and the states agree to cover the worker in one state. California calls this the Interstate Reciprocal Coverage Election, and Florida calls it the Reciprocal Coverage Agreement.
6. Compare the result with DOL’s telecommuting example. In that example, a New York employee who moves to Florida and performs all duties there remotely for the New York employer is localized in Florida, and all wages from the date she began telecommuting are reportable to Florida.
7. Record the test that fixed the coverage state, and rerun it whenever the work location changes. Find each state’s unemployment agency in the Department of Labor directory and confirm it on the state’s own site.
What a correct result looks like
One documented coverage state for each worker, with the test that fixed it.
How to match withholding, filing frequency, and deposits to each state registration
Run this procedure whenever a state or local account is added and at the start of each year. The deposit thresholds below are as of October 2026.
What you need first
* Pull the year-to-date withholding totals by jurisdiction.
* Collect the work-location records for every employee.
1. List every state and local registration with its agency, account number, filing frequency, and deposit schedule.
2. Match each employee’s withholding to the account for the jurisdiction it was withheld for.
3. Set frequency and deposits for each account using the agency’s rules. Pennsylvania has four deposit tiers, from quarterly when withholding is under $300 a quarter to semi-weekly at $5,000 or more. Ohio municipal remittance is monthly if the prior year’s withholding for that municipality exceeded $2,399 or any month of the preceding quarter exceeded $200, and quarterly otherwise, unless the municipality requires semimonthly remittance from larger withholders.
4. Add every return and reconciliation to the payroll compliance calendar. California Form DE 9 and New York Form NYS-45 are quarterly. Annual reconciliation is state-specific, including Pennsylvania Form REV-1667, Indiana Form WH-3 due January 31, and Philadelphia’s Q4 return as its final reconciliation.
5. Keep the work-location records with the filings for at least four years, the period IRS Publication 15 gives for employment tax records.
What a correct result looks like
Each registration has its frequency, deposit schedule, and due dates on the payroll compliance calendar, and year-end withholding totals by state tie back to the work-location record.
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Frequently asked questions
Which states do not impose a state income tax on wages?
Four examples are Nevada, Washington, South Dakota, and Texas, and each says on an official state site that it has no state income tax on individuals, as of October 2026. Check the state agency for any other state. Washington adds a 9.9% tax from January 1, 2028 on individuals and joint filers with annual adjusted gross income over $1 million.
Does a remote employee need a state withholding form as well as the federal W-4?
It depends on the state. California needs a Form DE 4 plus the federal W-4, Illinois uses Form IL-W-4, Indiana uses Form WH-4, and New York uses Form IT-2104. Utah bases withholding on the federal W-4 with no state certificate, and Vermont recommends Form W-4VT but accepts the federal W-4.
Does a reciprocity agreement cover local taxes?
Not automatically. Reciprocity addresses state income tax, and local taxes can be a separate question. Maryland’s Form MW507 lets a Pennsylvania resident claim exemption from Maryland state withholding on line 5, but Maryland county withholding continues unless the resident qualifies under line 6 or 7. Check the local tax agency for each work location before applying any exemption.
Is unemployment insurance withheld from an employee’s pay?
Generally not. State unemployment insurance is an employer-paid tax in every state, according to the U.S. Department of Labor’s latest comparison, which reflects laws as of January 1, 2023. That edition lists Alaska, New Jersey, and Pennsylvania as also requiring employee contributions, which the employer deducts, and IRS Publication 15 says FUTA is paid by the employer alone.
Is there a federal law that decides which state can tax a remote worker?
The Mobile Workforce State Income Tax Simplification Act has not become law as of October 2026. S.1443, introduced April 10, 2025, was referred to the Senate Finance Committee and has the status Introduced, and H.R.10271, introduced September 3, 2026, was referred to House Judiciary. S.1443 would limit state income tax on a multi-state employee’s wages to the resident state and a state where the employee performs duties for more than 30 days in the calendar year.
Talk to an expert at Asure
Talk to an expert at Asure about running multi-state payroll on AsureCentral or with AsureWorks. AsureWorks is a managed service and a PEO alternative, with no co-employment. You remain the employer of record and keep control of workforce decisions, along with your own benefits, broker, and retirement choices.
