Payroll Best Practices: Proper Handling of Multistate Taxation

Category: Education

Complying with the tax code, tax withholding requirements and deposit schedules for the IRS and one state is complicated enough. Not only are there more rules and regulations to comply with, but the penalties can multiply if mistakes are made. All payroll professional must know the taxation and reporting requirements for all states where the company has employees working or in the case of reciprocal agreements, living. But for the payroll department that must handle employees who work in multiple states simultaneously or who travel to different states at different times for the employer the taxing and reporting requirements can become an arduous task at best and at worse a total fiasco. Which state do we pay the SUI to and what happens if one of the states has disability insurance but the other doesn’t? Or worse yet what if both states require disability insurance to be deducted? Some employers may even think they have solved this logistics and regulations nightmare by simply withholding the income for and paying the SUI over to the state where the employee lives. Most states require state income tax withholding for wages paid for work performed in the state. No, the only way to determine the proper taxation for multiple state employees is by researching and apply the requirements for each state.