Do You Have State and Local Payroll Tax Obligations for Your Employees?

For non-residents who were working in Pennsylvania before the pandemic, their compensation would remain Pennsylvania sourced income for all tax purposes. For Pennsylvania residents who were working out-of-state before the pandemic, their compensation would remain sourced to the other Employer Payroll Tax Obligations When Employees Work Out-Of-State state and they would still be able to claim a resident credit for tax paid to the other state on the compensation. As the COVID-19 global health event continues, employees across the country are still working at home and will likely keep doing so for the foreseeable future.

• For COVID-19-related remote work on behalf of out-of-state employers, some states have temporarily waived the creation of a business nexus for state taxes, according to Cincinnati-based law firm Taft Stettinius & Hollister.
• This seems simple enough on the surface, but calculating the deductions requires attention to detail and extreme accuracy.
• However, during the pandemic, most states are temporarily waiving nexus taxes.
• Check state wages and hour laws; particularly minimum wage, overtime, pay frequency and exemptions.
• If the result of this calculation is more than 80 hours, you are considered to have employed more than 10 employees on a typical business day.
• Generally, an employer may file an election for employee UI coverage under the laws of the state where the employee is working.

If you have employees who receive cash tips from your customers, the tips may constitute taxable wages for payroll tax purposes. This designation subjects you as an employer to additional payroll tax withholding, reporting and payment requirements. In some states there are cities, counties, and other local governmental units that impose their https://quickbooks-payroll.org/ own income tax. If you do business in one of these localities, you may very well have an additional income tax withholding obligation. In addition to local income taxes, you may also find yourself paying local taxes measured by your total payroll (payroll expense taxes) or withholding local occupational fees from your employees’ wages.

Employer Payroll Taxes

The additional Medicare tax applies to income over $250,000 for married taxpayers who file a joint return and to income over $125,000 for married couples who file separate returns. If you receive any type of letter from the IRS concerning your payroll tax responsibilities, be sure to contact your accountant or tax advisor right away, to find out your options for responding. In most cases you must respond within a specified time period or lose your rights to contest the IRS’s assessment. If this process leaves you with insufficient funds to collect the employee’s FICA tax, your obligation to withhold the uncollected portion ends. In contrast, any outstanding income tax collections should be withheld from your next payment of wages to the employee.

If employees perform most of their work in-state, you report wages and pay regular unemployment rates to that state, regardless of where the temporary work occurs. As you read, you will gain a solid understanding of payroll taxes for remote employees, as well as factors employers should consider before navigating employee payroll taxes. Our goal is to provide you with an overview of how payroll taxes for remote employees work, so you can avoid stress and maintain compliance. Additionally, some states consider whether the employee is working from home for their own convenience or as a necessity for their job. If an employee is working from home for convenience, then the employer should withhold income taxes for the state where the business is located. However, if the employee is working from home as a necessity for the work they do, then income tax should be withheld for their home state.

State Taxes

Having a business, even a corporation, does not relieve company employees, executives, or owners from personal responsibility if payroll taxes are not paid. For example, if you are a single-member LLC, you are the sole owner of the business and you have personal responsibility for these taxes. New Jersey sourcing rules dictate that income is sourced based on where the service or employment is performed based on a day’s method of allocation.

• Alabama and Georgia announced that they would not enforce their payroll withholding requirements for employees who are temporarily working from home in their states due to government-mandated stay-at-home orders.
• Pepe’s Bistro, located in a seaside resort town, is busiest during the summer months.
• If an employee’s home and work states don’t have a reciprocal agreement, you can do courtesy withholding.
• You must register with each state tax department where you’ll remit the withholding.

You have an employee who lives in North Carolina and works at one of your locations there. You send that employee to South Carolina for three months of management training at another store. Some states have low taxes, some have high taxes, and some states don’t have income taxes at all. Some of these taxes are withheld from employee pay, and others are your responsibility as an employer. Minnesota residents are already taxed on income earned inside and outside the state. For nonresidents of Minnesota, the apportionment of their income may change based on the number of days they physically work in Minnesota.