Multi-State Income Tax Withholding

Background

If you have employees that work in another state, your business may be required to withhold the other state income tax because of your business presence (otherwise known as “nexus”) in that state. If you are unsure whether your business is required to withhold income taxes for employees working in a different state, please check with your accountant.

To find your state withholding forms for employees, check out our new employer help per state, where you can get specific links to state and federal employee withholding forms

How to Handle Multi-State Tax Withholding in Payroll

After you add an employee, if the employee’s address is in a new state that’s not already in your state list, you will see a Missing Information item at the top of the page to alert you that you need to choose to withhold taxes for the new state.

• For each state in which your business has a work location, you will automatically be required to withhold state income tax. 
• For each additional state in which your employees are working, you will need to indicate whether you want to withhold state income taxes for that state.

1. Go to Settings > Payroll Settings > State Tax Withholdings
2. Choose “Yes” for each state that your business will withhold income taxes.
   • If your employee only lives in that state but doesn’t work there, you can choose to withhold income taxes, but you are not obligated to.
     • If you have any employee who lives in a different state than your worksite state(s) and you choose to withhold income taxes, you will need to indicate on the employee’s Taxes page whether you have a non-resident certificate on file.  For more info, see Non-Resident Certificates for Employees in Other States.
   • You will need to register with the state for a new employer account if you haven’t already.
3. Click “Save.”

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