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Withholding for Different States

Hello!
I work a North Carolina Feed Hauling Trucking business. We are currently look at hiring South Carolina (possible a few other states) drivers. They would work in that state (SC) and would be residents of that state, just a NC business will be paying them. So, would it be South Carolina income withholding or NC?

Comments

  • In general, an employee is subject to income tax on wages in the state where the employee performs the services that are covered by the wages. In addition, the employee also must include those same wages in income on the tax return of the state in which the employee lives, but the resident state usually provides the employee with a (limited) tax credit where the wages included in the taxable income of the nonresident state.

    The employer is subject to state unemployment tax in only one state. On a simplified basis, such as your situation, the state where the SUTA will be paid is the state in which the employee's work is "localized". That is, where the employee provides all or most of the employee's services.

    Your situation sounds like it will be intrastate trucking. That is, the North Carolina drivers work only in North Carolina and the South Carolina drivers will be working only in South Carolina. Where that is the case, the state in which the employee works will be the state where the employer should withhold. This applies regardless of whether the North Carolina drivers are residents or nonresidents of North Carolina and whether the South Carolina drivers are residents or nonresidents of South Carolina. The general rule applies and you withhold for the state in which the employee performs the services regardless of where the employee lives or where the employer is located. (Note that State unemployment insurance, SUTA, has different rules).

    Some states require withholding for residents who work in other states if the state where the employee works withholds less tax than would be required to be withheld for the state where the employee lives, for example, New York. In such a case, the employer is required to withhold the difference for the resident state. Neither North Carolina nor South Carolina requires withholding on wages earned by a resident working in another state so long as the employer withholds tax for the other state.

    However, if your drivers work in two or more states, they are involved in interstate trucking. In that case the Amtrac Reauthorization and Improvement Act of 1990 kicks in. It prohibits states and localities, other than the state where the driver lives, from taxing the wages of a nonresident interstate truck driver. Here is a link to a South Carolina fact sheet on the matter - I did not find a similar fact sheet for NC but I believe it is discussed in the NC employer's withholding tax guide.

    https://dor.sc.gov/resources-site/lawandpolicy/Advisory Opinions/IL90-34.pdf

    Intrastate drivers
    So - If you have a NC resident truck driver who drives only in NC, withhold for NC. (NC SUTA)
    If you have a SC resident truck driver who drives only in SC, withhold for SC. (SC SUTA)
    If you have a NC nonresident truck driver who drives only in NC, withhold for NC. (NC SUTA)
    If you have a SC nonresident truck driver who drives only in SC, withhold for SC. (SC SUTA)
    If you have a NC resident truck driver who drives only in Tennessee, withhold for NC (TN does not have an income tax and you have nexus in NC). (TN SUTA)

    Interstate drivers
    If you have a NC resident truck driver who drives primarily in SC but also drives in at least one other state, withhold for NC. (SC SUTA)
    If you have a SC Driver who drives primarily in NC but also drives in at least one other state, withhold for SC. (NC SUTA)
    If you have a NC resident who lives in Boone, NC but drives primarily in East Tennesse and to a lesser extent in Western VA and the area around Boone, NC, withhold for NC. (TN SUTA)