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Method · More than one state

One employee can open a second state.

Published · Updated

Payroll follows the work, and sometimes it also follows the home. Those are different questions. Withholding answers who taxes the wage. Unemployment insurance answers which state gets the wage report. They can be different states in the same pay period.

An aerial view of roads crossing, used as an illustration for payroll that spans more than one state.

Situation 01

Lives in New Jersey, works in New York

Withhold New York State income tax on the New York wages. New York and New Jersey do not have a reciprocal agreement that lets you withhold only one of them. The employee may claim a credit on the New Jersey return for tax paid to New York. That credit is the employee’s, computed at filing. It is not a reason to skip New York withholding. If the person is also a New York City resident, city tax can apply. A New Jersey resident working in New York usually is not a city resident. Confirm IT-2104. Unemployment insurance generally follows the localization rules below, which often put a person who works entirely in New York into the New York wage report.

Situation 02

Moves from Texas to Florida in June

Neither state withholds a personal income tax, so the move does not add a state income-tax line. It can still split the unemployment wage base. Texas taxes the first $9,000. Florida taxes the first $7,000. Wages you already reported to Texas can matter to the Florida taxable base when the same employer transfers the employee, using Florida’s out-of-state wage credit and Form RT-6NF. Do not assume the Florida $7,000 starts at zero, and do not assume it is already finished. Read the successor and transfer rules, then report the remainder. Federal Social Security does not reset when someone changes states. The $184,500 base is national and, for your withholding, tied to wages you pay.

Situation 03

A company in Texas hires someone who works from California

The employee’s work state is California. Expect a California EDD account: personal income tax withholding, SDI, unemployment insurance, and the employment training tax. The company’s Texas address does not keep those wages in Texas. You may also still have Texas unemployment on other employees who work in Texas. Run two state systems. Federal deposits stay one system. California’s $16.90 minimum wage, or a higher local rate, applies to the hours worked in California. Texas’s lack of an income tax does not cap the California withholding.

Ask where the work is done

Start with a plain question: in which state is this person performing the services this pay period? An office, a job site, a kitchen, and a spare bedroom can each be the work state. If the services are all in one state, that state is usually where unemployment insurance is reported, and it is usually the first state that wants income-tax withholding if it has an income tax.

If the services are split, states use a localization sequence that comes from the common unemployment statute. The order is roughly this. First, if the service is localized in one state, that state covers it. Most of the work is there, and any out-of-state work is temporary or transitory. Second, if the work is not localized, look at the base of operations: the place the person starts from and returns to. Third, look at the place from which the employer directs and controls the work. Fourth, look at the residence, if some of the work is done there. Walk the tests in order. Stop at the first one that fits. Do not average two states because the person owns houses in both.

Income-tax withholding is not required to follow that unemployment sequence. A state can tax a nonresident on wages earned in the state, and it can tax a resident on wages earned anywhere. Two states can both have a claim. Reciprocal agreements exist so that, for some pairs, the employer withholds only for the state of residence. Pennsylvania has agreements with several neighbors. New Jersey and Pennsylvania have one. New York and New Jersey do not. Before you withhold for only one of two states, find the agreement or the absence of one on both revenue sites. A map from a payroll blog is not the agreement.

New York’s convenience-of-the-employer rule is the example people trip over. A nonresident who is assigned to a New York employer and who works outside New York for their own convenience, rather than because the employer needs the work performed there, can still have those days treated as New York wages. The rule has conditions and exceptions. If it might apply, read the current Tax Department guidance and get advice on the facts. This page only flags the question.

What to open, in order

  1. Write down the work state and the resident state for each new hire. Update both when either changes. A move on a Tuesday can change the next paycheck.
  2. If the work state is new to you, register for withholding there, if that state has income-tax withholding, and for unemployment insurance. Do this before the first wage, not with the first quarterly return.
  3. Collect the federal W-4 and the work state’s withholding certificate. California uses DE 4. New York uses IT-2104. Florida and Texas do not have a state income-tax certificate.
  4. Set the unemployment state from the localization tests. Report wages to that state up to its wage base. If you transfer someone, ask whether the new state gives credit for wages already taxed by you in the old state.
  5. Check minimum wage, overtime extras, and paid-leave deductions in the work state. New York Paid Family Leave does not travel to a Florida work site just because the company is incorporated in New York. Florida’s $15.00 wage does not apply to hours worked in Texas.
  6. Keep federal Social Security and Medicare running across all of this. They do not split by state.

The finished state guides cover the local machinery: Florida, New York, California, and Texas. Federal arithmetic is in withholding basics.