Unpaid Wages
Navigate remote worker state tax: learn which state's law applies remote employee, employer withholding remote employee obligations, payroll tax allocation, SUI and remote worker unemployment insurance, and practical onboarding steps for multistate employment jurisdiction remote work. Get checklists, examples, and documentation best practices to avoid nexus surprises and audit risk. Start compliance review today now.
Estimated reading time: 14 minutes
Last updated: September 26, 2025
Key Takeaways
Remote worker state tax rules generally follow where the employee actually works, not where the employer is located, with exceptions and tie-breaker tests.
Which state’s law applies remote employee questions turn on employee location, employer nexus, and source-of-services allocation, plus any reciprocity between states.
Employer withholding remote employee obligations often begin as soon as a remote hire creates nexus, requiring registration and correct state/local withholding setup.
Remote employee payroll tax includes state income tax, local taxes, paid leave/disability programs, and employer contributions like SUI, which is typically based on the primary work state.
Accurate location logs, documented policies, and periodic payroll audits are essential to manage multistate employment jurisdiction remote work risk and avoid penalties.
Table of Contents
Introduction
Understanding Which State’s Law Applies to Remote Employees
Employer Withholding Obligations for Remote Employees
Payroll Tax Considerations for Remote Employees
Remote Worker Unemployment Insurance Implications
Practical Onboarding & Ongoing Compliance Checklist
Common Scenarios & Short Case Studies
Resources & Links
Conclusion
FAQ
Introduction
Remote worker state tax is the set of state and local income tax, payroll withholding, and employment-tax obligations that arise when an employee performs services outside the state where their employer is located (or in multiple states). In practical terms, remote worker state tax determines who taxes the wages, which forms and accounts an employer must maintain, and how to allocate pay across states.
This matters for both HR/payroll managers and remote staff. It directly affects net pay, employer withholding responsibilities, potential nexus creation, and unemployment insurance coverage, as explained in guidance from Becker’s overview of remote work taxes and FileLater’s 2025 state withholding guide.
This article answers the core questions teams face: which state’s law applies remote employee circumstances; how employer withholding remote employee tasks should be handled; what payroll tax impacts arise; and how unemployment insurance is determined for remote workers. The focus is factual and step-by-step to help you make correct decisions quickly.
Understanding Which State’s Law Applies to Remote Employees
“Which state's law applies remote employee” means identifying the state whose income tax, employment statutes, and unemployment insurance rules govern wages paid to a remote employee. Getting this right prevents double taxation, under-withholding, and compliance gaps.
Primary criteria for jurisdiction
Employee location (physical work location/domicile): The state where the employee physically performs work day-to-day or is domiciled usually governs income tax on those earnings. Most states tax income where the services are performed, not where the employer sits—an approach highlighted by Becker and reiterated in FileLater’s state withholding guidance. This is fundamental to remote worker state tax decisions.
Employer location: The state where the employer is organized or maintains payroll/office can still matter, especially when the employer has nexus and is subject to registration, withholding, or other employer-level taxes. Some states may assert claims based on an employer’s in-state presence, which is part of the multistate employment jurisdiction remote work landscape described by FileLater.
Source/rules for work performed: “Source” refers to the state where services are rendered. When work is split among states, wages are allocated by where the work occurred. This source-based approach is a cornerstone of remote employee payroll tax allocation, as covered in Becker’s remote work tax guide.
“Localized employment” and multi-state tests
When work spans multiple states, each state may apply its own tests to decide which state’s employment taxes apply, a reality often called “localized employment.” This is a common multistate employment jurisdiction remote work scenario. Employers should review rules summarized by Paychex for out-of-state employees and FileLater on state withholding to determine which state will claim primary authority.
Reciprocal agreements and exceptions
Some neighboring states enter reciprocal agreements so that only the employee’s resident state taxes the wages. This can simplify employer withholding remote employee setup and prevent double taxation. Always verify the presence and scope of reciprocity using current state guidance and the overview in FileLater’s state-by-state withholding resource.
Concrete example: California–New York (explicit numbers)
Employee lives and works remotely in California for a New York employer. California taxes all income earned while the employee works in California. If the employee spends 10 days onsite in New York, New York may tax wages tied to those days; California typically provides a credit for taxes paid to New York to mitigate double tax, consistent with the allocation concepts in Becker’s guide and state-by-state details in FileLater’s 2025 resource. This example illustrates remote worker state tax mechanics and which state's law applies remote employee outcomes.
Practical recommendations to determine governing law
Confirm the employee’s primary physical work location and domicile; document where work is performed.
Review your employer nexus posture in every state where employees work, using summaries like FileLater’s withholding guide and Paychex’s out-of-state employee overview.
Check for any reciprocal agreements that could change withholding obligations.
Use state DOR and workforce agency guidance for edge cases, and align payroll allocation with the source-based concepts explained by Becker. For policy context on remote teams, see our plain-English remote work rights guide.
Employer Withholding Obligations for Remote Employees
“Employer withholding remote employee” means the employer’s duty to deduct and remit state and applicable local taxes based on the rules that apply to the employee. Withholding should reflect the correct state(s), wage allocation, and local add-ons, if any.
General rule
Employers usually must withhold based on the employee’s physical work location. This baseline rule is emphasized in FileLater’s state withholding guidance and Paychex’s guidance for out-of-state employees, and it drives many remote worker state tax setups.
Nexus and registration
Nexus is the legal or statutory connection that obligates a business to register and comply with a state’s tax regime. Even a single remote employee commonly creates withholding nexus, requiring registration before payroll runs, per FileLater’s 2025 guide. This is a core piece of multistate employment jurisdiction remote work risk management.
Reciprocal agreements and employee elections
Where reciprocity applies, employees may elect to have tax withheld to their resident state only by filing the resident-state certificate with the employer. Employers should collect and retain the applicable state withholding forms and elections as laid out in FileLater’s resource.
Practical employer checklist
Onboarding intake: Collect the employee’s home address, expected work locations, and state withholding forms (state W‑4 equivalents). This aligns payroll with remote employee payroll tax rules and supports employer withholding remote employee duties.
Nexus check and registration: Determine whether the employee’s work state creates nexus. If yes, register for a withholding account in that state before the first payroll, as noted in FileLater’s registration overview.
Payroll configuration: Configure your system to apply the correct state and local rates and to track multi-state allocations per pay period. This is critical for remote employee payroll tax accuracy.
Time/location logs: If the employee splits time across states, require documented time and location records to allocate wages appropriately. This supports multistate employment jurisdiction remote work compliance and reduces audit exposure.
Change control: Monitor planned relocations or extended travel. Update registration and withholding promptly. Communicate timelines and employee notice obligations to maintain employer withholding remote employee accuracy.
For governance and policy alignment, see our guide to legal compliance in workplace policies and broader workplace compliance considerations.
Documentation & audit readiness
Maintain signed remote-work policies, employee location attestations, travel calendars with dates, and all state withholding election forms for 4–7 years. Poor documentation can trigger assessments in audits, as Paychex cautions for out-of-state payrolls. Clear policies and records also support remote worker state tax defense.
Quick Q&A
What if an employee lives in a no-income-tax state? You still must evaluate local taxes, SUI, and other payroll obligations in the work state. Some cities levy local payroll taxes even without state income tax. Check state/local rules and consider professional advice.
What if the worker is a contractor? Withholding rules differ for independent contractors. Misclassification risks are high; determine status first before applying remote employee payroll tax rules. When in doubt, get guidance from tax counsel.
Can an employer refuse to withhold for multiple states? If work is sourced to more than one state under applicable rules, withholding should follow those allocations. Refusing creates under-withholding risk. Complex cases warrant professional review to align with employer withholding remote employee duties.
Payroll Tax Considerations for Remote Employees
Remote employee payroll tax covers all pay-related taxes that must be withheld and reported when work crosses state lines—including state income tax, local payroll taxes, disability insurance or paid family leave programs, and employer contributions. These are summarized in Becker’s guide to remote work taxes, Paychex’s out-of-state payroll guide, and SWAT Advisors’ remote worker tax planning tips.
Specific payroll items to consider
State and local personal income tax withholding: Withhold based on where services are performed and any applicable local rules. This is a core remote employee payroll tax function.
State unemployment insurance (SUI) contributions: Generally employer-paid and governed by the primary work state; covered in detail below. This ties to remote worker unemployment insurance obligations and may vary by state.
State disability insurance or paid family/medical leave: Some states fund short-term disability or paid leave via payroll withholdings or employer contributions (for example, SDI or PFML programs), as noted by SWAT Advisors and Paychex.
Local payroll taxes: Certain cities or counties impose employer or employee payroll taxes based on residence or work location, impacting remote employee payroll tax calculations.
Wage-allocation method and numeric example
Base allocation on where services are rendered, unless a specific state rule applies. Example: An employee earns $100,000 and works 80% of days in State A and 20% in State B. Payroll should allocate $80,000 to State A and $20,000 to State B and withhold accordingly, consistent with source-based concepts outlined in Becker. Keep contemporaneous records to support these allocations.
Impact on employee paychecks and reconciliation
If allocations or state elections are wrong, employees can face under-withholding and a tax bill at filing. Conduct quarterly reviews and a mid-year reconciliation to confirm withholding aligns with actual work patterns. This protects both remote employee payroll tax compliance and remote worker state tax accuracy.
Tools and best practices
Use multistate payroll software with geolocation and automatic tax table updates, as urged by Paychex and FileLater.
Automate location tracking with daily check-ins or a timesheet location field to support multistate employment jurisdiction remote work allocations.
Give employees clear guidance to report temporary travel and any relocation immediately; see our workplace privacy rights guide for how monitoring and location policies intersect with legal limits.
Schedule an annual payroll audit for all multistate employees to verify codes, accounts, and percentages for remote employee payroll tax accuracy.
Remote Worker Unemployment Insurance Implications
Remote worker unemployment insurance refers to state unemployment insurance (SUI) programs funded by employer payroll taxes. The state where the employee primarily performs work usually governs which SUI regime applies, a framework summarized by Paychex.
“Localized employment” test for SUI
When work is performed primarily in one state, that state’s UI rules often apply under localized employment principles. If work is split among states, states use tie-breaker tests to determine the primary SUI state, as described in Paychex and reflected in the state withholding context by FileLater. This is a standard multistate employment jurisdiction remote work issue.
Managing employer contributions step-by-step
Register with the workforce agency in the primary SUI state and obtain an employer account number (see Paychex’s guidance).
Remit quarterly (and any annual) contributions and file the state’s UI wage reports.
Report new hires to the designated state registry on time.
Update the SUI state if the employee’s primary work location changes; confirm the effective date.
Complications & examples
An employee teleworks from State A but travels to State B for short stints. Determine whether work is “localized” to State A under that state’s rules and UI tie-breakers. If the facts are ambiguous, consult the relevant workforce agencies for written guidance, a practice encouraged by Paychex. This is vital for remote worker unemployment insurance certainty.
Compliance action list for SUI
Determine the primary work state using documented work patterns; keep records supporting the decision to satisfy remote worker unemployment insurance requirements.
Register with the appropriate state workforce agency and remit contributions on schedule. Coordinate this with employer withholding remote employee setup for consistency.
Maintain day-by-day work location logs and update agencies where required, a critical step for multistate employment jurisdiction remote work compliance.
When in doubt, contact state workforce agencies for a written determination and retain it in your files.
Practical Onboarding & Ongoing Compliance Checklist
Employer checklist
Collect the employee’s home address and expected work locations; obtain a signed location attestation to support remote worker state tax determinations and employer withholding remote employee setup.
Require employees to report any onsite work in other states and provide a travel calendar to support multistate employment jurisdiction remote work allocations and remote employee payroll tax accuracy.
Register for state withholding and SUI in any state where the employee will regularly work, and open accounts before the first payroll, as emphasized by FileLater.
Configure payroll to allocate wages by state and local jurisdiction (see examples in Section 3) to align with remote employee payroll tax rules.
Maintain records—location logs, travel records, withholding forms—for audit readiness, a best practice highlighted by Paychex for remote worker state tax compliance.
Reevaluate policies whenever an employee relocates or when your remote-work policies change to keep systems accurate.
For policy drafting support, explore our guides on policy compliance essentials and broader workplace compliance attorney services.
Employee checklist (share with your team)
Notify HR/payroll immediately if you move or plan extended work from another state; this keeps remote worker state tax and withholding correct.
File any resident-state withholding elections available under reciprocity and keep copies to coordinate employer withholding remote employee processes and remote employee payroll tax treatment.
Keep personal records of where you worked each day to support multistate employment jurisdiction remote work allocations at year-end.
Common Scenarios & Short Case Studies
Case 1: Employee lives and works in State A; employer is in State B
Facts: Employee resides and works 100% remotely in State A (an income-tax state). Employer is headquartered in State B.
Which state’s law applies: State A generally taxes wages earned there. This aligns with source-based rules described by Becker and the work-location approach in FileLater.
Withholding and registration: Employer must register in State A and withhold State A income tax. If an occasional trip to State B occurs, allocate wages for those days to State B and withhold accordingly.
SUI: State A is typically the SUI state under localized employment.
What to watch: Nexus created by one remote employee; timely registration; correct allocation for occasional travel; documentation of days worked. Keep location attestations and travel logs.
Case 2: Employee lives in a no-income-tax state; employer is in a tax state
Facts: Employee works entirely from a no-income-tax state; employer is in a state with income tax.
Withholding: If the employee does not work in the employer’s tax state, the employer usually does not withhold that state’s income tax. Monitor local payroll taxes, PFML/SDI, and SUI in the no-tax state (if applicable). See FileLater for resident/work-state rules and Paychex for out-of-state payroll specifics.
Elections: Reciprocity may allow resident-state-only withholding in some border situations; verify eligibility and file the proper form if available.
What to watch: Hidden local taxes, employer registration requirements, and SUI rules in the primary work state; account setup before first payroll; payroll system flags for location movement.
Case 3: Employee splits the calendar year across two states
Facts: Employee works 7 months in State A and 5 months in State B.
Allocation: Allocate wages based on days or months worked in each state (as state rules require). For example, allocate 58% to State A and 42% to State B if based on days. This follows source-of-services concepts summarized by Becker.
SUI: Register and pay SUI to the primary work state per localized employment; confirm the primary state for UI purposes with the guidance in Paychex.
What to watch: Midyear relocation triggers new registrations, updates to local taxes, and careful W‑2 reporting with state-by-state wage boxes. Keep relocation notices and updated attestations.
Resources & Links
Recommendation: When preparing to publish or update this guidance, add links to the relevant state department of revenue and workforce agency pages for the states you cite in examples. State rules change; verify reciprocity and registration steps against current state-source pages. Use the frameworks in FileLater and Paychex as starting points.
Conclusion
A single remote employee can create nexus and trigger registration and compliance in a new state, as underscored by FileLater’s state withholding overview and Paychex’s out-of-state payroll guidance.
Withholding generally follows the employee’s work location; allocations are based on the source of services performed.
Remote employee payroll tax items vary by state and locality, including local taxes, PFML/SDI programs, and employer contributions like SUI.
Remote worker unemployment insurance typically follows the primary work state under localized employment rules.
Documentation, automation, and periodic audits are essential to manage multistate employment jurisdiction remote work risk and keep records ready for review.
Immediate next steps: run an employee-location audit, verify reciprocity and state-specific withholding forms, register for accounts where needed, configure payroll for multi-state allocations, and consult tax counsel or state agencies for ambiguous fact patterns. Revisit the practical frameworks in FileLater’s 2025 guide and Paychex’s out-of-state payroll resource to align your processes with remote worker state tax and employer withholding remote employee requirements.
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FAQ
Which state's law applies remote employee who lives in a different state than employer?
Most of the time, the employee’s physical work location controls, meaning the resident/work state taxes wages earned there. If the employee sometimes works in the employer’s state, allocate wages for those days accordingly. Reciprocity between neighboring states can shift withholding to the resident state only. These principles follow the source-of-services approach summarized by Becker and reflected in state guidance.
How should an employer handle withholding for out-of-state remote employees?
Register for withholding in the work state, collect the correct state W‑4 equivalent and any reciprocity election, configure payroll for state/local rates, and track days by state for allocations. Monitor relocations and update accounts promptly. See the step-by-step recommendations in FileLater’s 2025 state withholding guide for employer withholding remote employee setup.
How is unemployment insurance handled for remote workers?
Remote worker unemployment insurance generally applies in the employee’s primary work state under localized employment rules. Employers should register with that state’s workforce agency, file quarterly reports, and remit contributions. For tie-breaker situations, consult the framework outlined by Paychex and confirm with the relevant agency.
What if I travel to multiple states temporarily?
Short trips can still require wage allocation to the travel state if services are performed there. Employers should maintain travel logs and apply state rules to determine whether withholding or registration is required. This is a common multistate employment jurisdiction remote work scenario; document days and consult state guidance to avoid remote worker state tax surprises.
For broader policy considerations around remote teams, review our practical overview of remote work rights and policies and how compliance intersects with workplace privacy and monitoring.
