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Live in, work in payroll

We are located in Colorado and have employees that live in different states but commute to the client site in another state to work.

I'm trying to find documentation for my CFO for him to show to the VP in charge of these employees that the employee pays taxes to the state that he works in. I may have stated it very simply but if anyone could point me in the right direction, I would really appreciate it.

Thanks in advance!

Pat

Comments

  • I'm not sure if this site is free but it does contain great information.

    http://www.statew4.com/index.php
  • For Which State Must You Withhold?
    If your company has operations in more than one state, you may be faced with income tax withholding for more than one state. Sometimes, you may even have to withhold income tax for more than one state from the same employee. Withholding can get even more complicated when you have employees who live in a different state than the one they work in or who perform services in more than one state.

    Deciding which state's income tax to withhold can be a confusing process. How do you determine who is a resident and whether you should follow the laws of the state of residence or the laws of the state in which services are performed? Not all states answer these basic questions in the same way and, sometimes, state laws conflict. Even the simple word "opera¬tions,'' as used in the paragraph above, is more complex than you might think.

    From a basic rule of thumb to three rules
    The default rule of state income tax withholding that can be used as a starting point is to withhold income tax for the state in which services are performed. It can be applied in most situations in which tile employee lives and works in the same state (assuming it is not one of the nine states without income tax withholding: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming).

    However, up to three other withholding rules may have to be considered when the situation is not as straightforward. For example, an employee who lives and works in one state may still be a resident of some other state; that's where withholding Rule No. 1 comes into play. In this scenario, the employee may have income tax liability for the state of residency, and, if you have operations in that state and meet certain other criteria, you may be required to withhold for that other state. On the next level, if an employee lives in one state and works in another, each state's laws of reciprocity (withholding Rule No. 2) and resident/non-resident taxation policies (withholding Rule No. 3) must be examined.

    Withholding rule number 1: Resident defined
    The very first determination that must be made is the state of residence of the employee. This is primary because a resident of a state is subject to the laws of that state, including its income tax laws. Furthermore, states have varying policies on withholding from residents who perform services in another state and from nonresidents who perform services within the state. To locate and apply the policies correctly, you'll need to know which state(s) can claim the employee as a resident.

    Employees commonly claim that they are a resident of their "home" state. If the employee has relocated to work for you, he/she may assert that the former state is his/her state of residence because he/she still has a home and family there (and doesn't want to complete personal income tax returns for two states). An employee who works for you only during the nine months of the school year, for example, might try to claim that she is a resident of the state she grew up in but in which she now spends only three months of the year. This may be especially likely if her home state doesn't have an income tax.

    It's up to you to locate and follow the rules of the appropriate state. Most states have a two-pronged definition of residency, outlining that someone will be a resident by either:
    1. Being domiciled in the state, or
    2. Spending more than a certain number of days in the state.

    The term "domicile" usually means the place where an individual has a true, fixed, permanent home and principal establish¬ment, and it usually means the place to which the individual intends to return. Common indicators that an individual is domiciled in a particular location include:
    • Property ownership
    • Bank accounts
    • Driver's license and vehicle registration
    • Voting registration
    • Presence of family
    • Club and church memberships
    For example, New York claims as a resident anyone who is either of the following:
    • Domiciled in the state, or
    • Maintains a permanent place of abode and spends more than 183 days of the year in the state
    Withholding rule number 2: Reciprocity
    If an employee performs services in a state other than the state of residence, you must find out whether the two states have a reciprocal agreement. A reciprocal agreement allows you to withhold only for the state of residence, as opposed to the state in which services are performed. (This is an example of why the rule of thumb is only a starting point.) Accordingly, you would report wages only to the state of residence when completing boxes 16-17 (state wages) of federal Form W-2, Wage and Tax Statement. In most cases, the employee will be required to submit a certificate of non-residence for the state in which he/she works before you can honor the reciprocal agreement.

    The general purpose of reciprocity is to make things administratively easier for the employee and employer. The employee will have to file only one state personal income tax return, and the employer will withhold only for the state in which the employee lives. This is especially helpful if you have an employee who performs services in two or more states that have reciprocity with the state of residence. For example, for an employee who lives in the District of Columbia, works in D.C., Virginia, and Maryland, and submits certificates of non-residence for Virginia and Maryland, the employer will need to withhold only D.C. income taxes because the three jurisdictions have reciprocal agreements with each other. Without reci¬procity, the employer would have to withhold for all three jurisdictions based on the time worked in each one.

    On the other hand, the presence of a reciprocal agreement requires you to change the state of withholding and reporting if the employee moves his/her residence from one state to another, even though there has been no change in the state in which the services are performed
    Reciprocal coverage


    RECIPROCAL WITHHOLDING AGREEMENTS BETWEEN STATES


    Alabama
    None


    Alaska
    Not applicable


    Arizona
    None


    Arkansas
    Residents of Texarkana, Arkansas are exempt from Arkansas state income tax and withholding. Residents of Texarkana, Texas are exempt from Arkansas income tax for wages earned in Texarkana, Arkansas. Agreement does not apply to residents of other cities or other Texas residents working in other parts of Arkansas.


    California
    None


    Colorado
    None


    Connecticut
    None


    Delaware
    None


    District of Columbia
    Reciprocal agreements with Virginia and Maryland. Non-Residents of District of Columbia filling out a Certificate of Nonresidence are not subject to DC withholding unless they voluntarily request the withholding.


    Florida
    Not applicable


    Georgia
    None


    Hawaii
    None


    Idaho
    None


    Illinois
    Residents of Iowa, Kentucky, Michigan or Wisconsin are not subject to Illinois income tax withholding for wages earned in Illinois if an Employee's Statement of Non-Residence in Illinois is filed with the employer. The reciprocal agreement with Indiana expired at the end of 1997.


    Indiana
    Residents of Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin are not required to have Indiana withholding. The reciprocity is not applicable to county income taxes. The reciprocal agreement with Illinois expired at the end of 1997.


    Iowa
    Residents of Illinois have Illinois state tax withheld only if the Employee's Statement of
    Nonresidence in Iowa is filed with the employer.


    Kansas
    None


    Kentucky
    Resident of Illinois, Indiana, Michigan, Ohio, West Virginia, and Wisconsin have only their resident state tax withheld if a Certificate of Nonresidence is filed with the employer. Daily commuters between Kentucky and Virginia are provided reciprocal benefits.


    Louisiana

    None

    Maine

    None

    Maryland
    No Maryland tax is withheld from employees who commute daily to Maryland and reside in the District of Columbia, Pennsylvania, Virginia and West Virginia. A certificate of nonresidence must be filed with the employer.


    Massachusetts

    None

    Michigan
    Michigan employers do not withhold Michigan state income tax from residents of Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. Michigan employees must file certificates of nonresidence to be exempt from withholding. A form is not provided.


    Minnesota
    Residents of Michigan, North Dakota, and Wisconsin are exempted from Minnesota withholding. A reciprocity Exemption from Minnesota Withholding, Affidavit of Residency is required to certify residency.


    Mississippi
    None


    Missouri
    None


    Montana
    Montana employers are not required to withhold Montana income tax from residents of North Dakota. A certificate of North Dakota residency is required.


    Nebraska
    None


    Nevada

    Not applicable


    New Hampshire
    Not applicable


    New Jersey
    Pennsylvania residents filling out a certificate of nonresidence are not subject to New Jersey withholding.


    New Mexico
    None


    New York
    None


    North Carolina
    None


    North Dakota
    Residents of Minnesota and Montana working in North Dakota are not required to have North Dakota tax withheld. An Affidavit of Residency should be filed with their employer annually.


    Ohio
    Ohio has reciprocal agreements with Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. Employee's Statement of Nonresidence in Ohio must be filed with the employer to claim the exemption.


    Oklahoma
    None


    Oregon
    None


    Pennsylvania
    Pennsylvania has reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. An Employee Statement of Non-residence and Authorization to Withhold Other States' Income Tax must be filed with the employer. For New Jersey residents who work in Pennsylvania, the amount of any Pennsylvania local income tax withholding reduces the amount of New Jersey income tax to be withheld from those same wages.


    Rhode Island
    None


    South Carolina
    None


    South Dakota
    Not applicable


    Tennessee
    Not applicable


    Texas
    Not applicable


    Utah
    None


    Vermont
    None


    Virginia
    Full reciprocal agreement with West Virginia but a certificate of nonresidence in Virginia must be filed. Daily commuters from Kentucky, Maryland, and District of Columbia filing a certificate of nonresidence are exempt from Virginia tax. Pennsylvania and West Virginia residents can file the certificate only if subject to the state income tax of the resident state. A form for a credit for income tax paid to another state is available to Arizona, California, District of Columbia, Maryland and New Mexico residents working in Virginia and must be completed annually for the withholding credit.


    Washington
    Not applicable


    West Virginia
    Reciprocal agreements are in place with Kentucky, Maryland, Ohio, Pennsylvania, and Virginia. A withholding exemption certificate must be filed with the employer.


    Wisconsin
    Illinois, Indiana, Kentucky, Michigan and Minnesota residents working within Wisconsin must provide a written statement to their employer certifying the place of residence in order for the employer to not withhold Wisconsin income tax. Minnesota residents are required to fill out the Statement of Minnesota residency annually. Others must fill out Nonresident Employee's Withholding Reciprocity Declaration.


    Wyoming
    Not applicable


    Withholding rule number 3: Resident/non-resident taxation policies
    If an employee is a resident of one state but performs services in another, and there is no reciprocal agreement, you must consider the laws of both states. The correct determination of the state of residency (Rule No. 1) is very important in these situations because it tells you which state's laws you may need to consider in addition to those of the state in which the employee works.

    The state in which the services are performed will almost always require withholding from non-residents who come into the state to work (withholding only from the wages for services performed in that state). A few states have exceptions to this, usually based on whether the employee works in the state for less than a certain length of time or earns less than a certain amount of money. For example, if a South Carolina resident works in Georgia, Georgia withholding is required if the work is for a period of more than 23 days during a calendar quarter. In general, an employer is always subject to the laws of any state in which it has an employee performing services, whether or not the employer has facility (such as an office, factory, or store) in the state.

    The employee's state of residence may also need to be considered even if the employee doesn't work there. If the employer has a business connection, also referred to as "nexus", with the state in which the employee resides, then the employer is subject to the laws of that state even if the employee doesn't work there. For example, if the South Carolina resident works exclusively in Georgia for six months, and if the employer has nexus with South Carolina:


    • Georgia withholding is required (the 23-day threshold is exceeded), and
    • South Carolina withholding is required, with a credit for income tax withheld for the work-state (in this case, Georgia).

    In this situation, the employer must first calculate and withhold Georgia income tax. Then the employer must calculate South Carolina income tax on the same wages and, if the South Carolina tax is greater, withhold an amount equal to the dif¬ference between the South Carolina income tax and the Georgia income tax. If the South Carolina tax is less than the Georgia tax, no South Carolina tax need be withheld.

    If, however, the employer does not have nexus with South Carolina, then the employer is not subject to the laws of that state and is not required to withhold that state's income tax. However, the employee may have personal income tax liability on these and all other earned wages by virtue of being a resident of that state.

    Nexus: Business connection
    The word "nexus" literally means "connection." In the withholding context, the employer's concern is whether it has a busi¬ness connection, or any operations, within a state. If it does, it is subject to the withholding tax laws of that state. This will make the difference in whether an employer has to withhold income tax for an employee's resident-state even though he/she performs no services there.

    Nexus is established by having a business presence in a state. An office, store, or factory will create nexus, as will the mere entry of an employee into a state to make a sale or perform a service call. A guide to each state's roles on determining nexus is available by calling the American Institute of Certified Public Accountants at 1-888-777-7077 and asking for product 061057, the State Tax Nexus Checklist Practice Guide. It is free for members of AICPA's tax section, $29 for other AICPA members, and $39 for non-members.

    If an employer doesn't have nexus in a state for which one of its employees will have a personal income tax liability, it can choose to establish a withholding account in that state and begin withholding as a courtesy to its employees. However, the payroll department should check with the corporate tax and legal departments of the company first because once you volun¬tarily register for one tax, you may receive inquiries from the state about other taxes for which you aren't liable, such as sales tax or corporate income tax. Also, in some states, withholding and paying over taxes may thereby establish nexus, making your company open to be sued in the courts of that state.

    Employees working in multiple states without reciprocity
    If an employee works in multiple states that do not have reciprocity with the employee's state of residence, then the amount of wages earned in each state must be separately examined under withholding Rule No. 3. The first step is to split the wages by state, which may be done by the number of hours worked for an hourly employee or days worked for a salaried employ¬ee, or by the sales volume for a commissioned salesperson. The employer will definitely have nexus in the state in which services are performed and will most likely (depending on the state's law) need to withhold the work-state's tax from the wages earned within the state. In addition, if the employer has nexus in the employee's resident-state, it may need to consid¬er withholding for that state from these wages as well.

    There are exceptions to this process under the Amtrak Reauthorization and Improvement Act of 1990. Railroad and motor carrier employees who work in more than one state are subject only to the state and local income tax laws of their state of residence, regardless of where they work. Employees in air transportation are subject to withholding for their state of resi¬dence and any other state in which they earn more than half of their wages.
  • chopay wrote:
    RECIPROCAL WITHHOLDING AGREEMENTS BETWEEN STATES

    Minnesota
    Residents of Michigan, North Dakota, and Wisconsin are exempted from Minnesota withholding. A reciprocity Exemption from Minnesota Withholding, Affidavit of Residency is required to certify residency.


    Wisconsin
    Illinois, Indiana, Kentucky, Michigan and Minnesota residents working within Wisconsin must provide a written statement to their employer certifying the place of residence in order for the employer to not withhold Wisconsin income tax. Minnesota residents are required to fill out the Statement of Minnesota residency annually. Others must fill out Nonresident Employee's Withholding Reciprocity Declaration.


    FYI, MN/WI reciprocity ends as of 12/31/09.
  • Thank you all so much for all of this information!
  • Thanks for the info, MKD. I guess the states are looking for any possible way to increase revenue. *sigh*
  • Where was this information taken from?

    Thanks!

    Pat
    chopay wrote:
    For Which State Must You Withhold?
    If your company has operations in more than one state, you may be faced with income tax withholding for more than one state. Sometimes, you may even have to withhold income tax for more than one state from the same employee. Withholding can get even more complicated when you have employees who live in a different state than the one they work in or who perform services in more than one state.

    Deciding which state's income tax to withhold can be a confusing process. How do you determine who is a resident and whether you should follow the laws of the state of residence or the laws of the state in which services are performed? Not all states answer these basic questions in the same way and, sometimes, state laws conflict. Even the simple word "opera¬tions,'' as used in the paragraph above, is more complex than you might think.

    From a basic rule of thumb to three rules
    The default rule of state income tax withholding that can be used as a starting point is to withhold income tax for the state in which services are performed. It can be applied in most situations in which tile employee lives and works in the same state (assuming it is not one of the nine states without income tax withholding: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming).

    However, up to three other withholding rules may have to be considered when the situation is not as straightforward. For example, an employee who lives and works in one state may still be a resident of some other state; that's where withholding Rule No. 1 comes into play. In this scenario, the employee may have income tax liability for the state of residency, and, if you have operations in that state and meet certain other criteria, you may be required to withhold for that other state. On the next level, if an employee lives in one state and works in another, each state's laws of reciprocity (withholding Rule No. 2) and resident/non-resident taxation policies (withholding Rule No. 3) must be examined.

    Withholding rule number 1: Resident defined
    The very first determination that must be made is the state of residence of the employee. This is primary because a resident of a state is subject to the laws of that state, including its income tax laws. Furthermore, states have varying policies on withholding from residents who perform services in another state and from nonresidents who perform services within the state. To locate and apply the policies correctly, you'll need to know which state(s) can claim the employee as a resident.

    Employees commonly claim that they are a resident of their "home" state. If the employee has relocated to work for you, he/she may assert that the former state is his/her state of residence because he/she still has a home and family there (and doesn't want to complete personal income tax returns for two states). An employee who works for you only during the nine months of the school year, for example, might try to claim that she is a resident of the state she grew up in but in which she now spends only three months of the year. This may be especially likely if her home state doesn't have an income tax.

    It's up to you to locate and follow the rules of the appropriate state. Most states have a two-pronged definition of residency, outlining that someone will be a resident by either:
    1. Being domiciled in the state, or
    2. Spending more than a certain number of days in the state.

    The term "domicile" usually means the place where an individual has a true, fixed, permanent home and principal establish¬ment, and it usually means the place to which the individual intends to return. Common indicators that an individual is domiciled in a particular location include:
    • Property ownership
    • Bank accounts
    • Driver's license and vehicle registration
    • Voting registration
    • Presence of family
    • Club and church memberships
    For example, New York claims as a resident anyone who is either of the following:
    • Domiciled in the state, or
    • Maintains a permanent place of abode and spends more than 183 days of the year in the state
    Withholding rule number 2: Reciprocity
    If an employee performs services in a state other than the state of residence, you must find out whether the two states have a reciprocal agreement. A reciprocal agreement allows you to withhold only for the state of residence, as opposed to the state in which services are performed. (This is an example of why the rule of thumb is only a starting point.) Accordingly, you would report wages only to the state of residence when completing boxes 16-17 (state wages) of federal Form W-2, Wage and Tax Statement. In most cases, the employee will be required to submit a certificate of non-residence for the state in which he/she works before you can honor the reciprocal agreement.

    The general purpose of reciprocity is to make things administratively easier for the employee and employer. The employee will have to file only one state personal income tax return, and the employer will withhold only for the state in which the employee lives. This is especially helpful if you have an employee who performs services in two or more states that have reciprocity with the state of residence. For example, for an employee who lives in the District of Columbia, works in D.C., Virginia, and Maryland, and submits certificates of non-residence for Virginia and Maryland, the employer will need to withhold only D.C. income taxes because the three jurisdictions have reciprocal agreements with each other. Without reci¬procity, the employer would have to withhold for all three jurisdictions based on the time worked in each one.

    On the other hand, the presence of a reciprocal agreement requires you to change the state of withholding and reporting if the employee moves his/her residence from one state to another, even though there has been no change in the state in which the services are performed
    Reciprocal coverage


    RECIPROCAL WITHHOLDING AGREEMENTS BETWEEN STATES


    Alabama
    None


    Alaska
    Not applicable


    Arizona
    None


    Arkansas
    Residents of Texarkana, Arkansas are exempt from Arkansas state income tax and withholding. Residents of Texarkana, Texas are exempt from Arkansas income tax for wages earned in Texarkana, Arkansas. Agreement does not apply to residents of other cities or other Texas residents working in other parts of Arkansas.


    California
    None


    Colorado
    None


    Connecticut
    None


    Delaware
    None


    District of Columbia
    Reciprocal agreements with Virginia and Maryland. Non-Residents of District of Columbia filling out a Certificate of Nonresidence are not subject to DC withholding unless they voluntarily request the withholding.


    Florida
    Not applicable


    Georgia
    None


    Hawaii
    None


    Idaho
    None


    Illinois
    Residents of Iowa, Kentucky, Michigan or Wisconsin are not subject to Illinois income tax withholding for wages earned in Illinois if an Employee's Statement of Non-Residence in Illinois is filed with the employer. The reciprocal agreement with Indiana expired at the end of 1997.


    Indiana
    Residents of Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin are not required to have Indiana withholding. The reciprocity is not applicable to county income taxes. The reciprocal agreement with Illinois expired at the end of 1997.


    Iowa
    Residents of Illinois have Illinois state tax withheld only if the Employee's Statement of
    Nonresidence in Iowa is filed with the employer.


    Kansas
    None


    Kentucky
    Resident of Illinois, Indiana, Michigan, Ohio, West Virginia, and Wisconsin have only their resident state tax withheld if a Certificate of Nonresidence is filed with the employer. Daily commuters between Kentucky and Virginia are provided reciprocal benefits.


    Louisiana

    None

    Maine

    None

    Maryland
    No Maryland tax is withheld from employees who commute daily to Maryland and reside in the District of Columbia, Pennsylvania, Virginia and West Virginia. A certificate of nonresidence must be filed with the employer.


    Massachusetts

    None

    Michigan
    Michigan employers do not withhold Michigan state income tax from residents of Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. Michigan employees must file certificates of nonresidence to be exempt from withholding. A form is not provided.


    Minnesota
    Residents of Michigan, North Dakota, and Wisconsin are exempted from Minnesota withholding. A reciprocity Exemption from Minnesota Withholding, Affidavit of Residency is required to certify residency.


    Mississippi
    None


    Missouri
    None


    Montana
    Montana employers are not required to withhold Montana income tax from residents of North Dakota. A certificate of North Dakota residency is required.


    Nebraska
    None


    Nevada

    Not applicable


    New Hampshire
    Not applicable


    New Jersey
    Pennsylvania residents filling out a certificate of nonresidence are not subject to New Jersey withholding.


    New Mexico
    None


    New York
    None


    North Carolina
    None


    North Dakota
    Residents of Minnesota and Montana working in North Dakota are not required to have North Dakota tax withheld. An Affidavit of Residency should be filed with their employer annually.


    Ohio
    Ohio has reciprocal agreements with Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. Employee's Statement of Nonresidence in Ohio must be filed with the employer to claim the exemption.


    Oklahoma
    None


    Oregon
    None


    Pennsylvania
    Pennsylvania has reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. An Employee Statement of Non-residence and Authorization to Withhold Other States' Income Tax must be filed with the employer. For New Jersey residents who work in Pennsylvania, the amount of any Pennsylvania local income tax withholding reduces the amount of New Jersey income tax to be withheld from those same wages.


    Rhode Island
    None


    South Carolina
    None


    South Dakota
    Not applicable


    Tennessee
    Not applicable


    Texas
    Not applicable


    Utah
    None


    Vermont
    None


    Virginia
    Full reciprocal agreement with West Virginia but a certificate of nonresidence in Virginia must be filed. Daily commuters from Kentucky, Maryland, and District of Columbia filing a certificate of nonresidence are exempt from Virginia tax. Pennsylvania and West Virginia residents can file the certificate only if subject to the state income tax of the resident state. A form for a credit for income tax paid to another state is available to Arizona, California, District of Columbia, Maryland and New Mexico residents working in Virginia and must be completed annually for the withholding credit.


    Washington
    Not applicable


    West Virginia
    Reciprocal agreements are in place with Kentucky, Maryland, Ohio, Pennsylvania, and Virginia. A withholding exemption certificate must be filed with the employer.


    Wisconsin
    Illinois, Indiana, Kentucky, Michigan and Minnesota residents working within Wisconsin must provide a written statement to their employer certifying the place of residence in order for the employer to not withhold Wisconsin income tax. Minnesota residents are required to fill out the Statement of Minnesota residency annually. Others must fill out Nonresident Employee's Withholding Reciprocity Declaration.


    Wyoming
    Not applicable


    Withholding rule number 3: Resident/non-resident taxation policies
    If an employee is a resident of one state but performs services in another, and there is no reciprocal agreement, you must consider the laws of both states. The correct determination of the state of residency (Rule No. 1) is very important in these situations because it tells you which state's laws you may need to consider in addition to those of the state in which the employee works.

    The state in which the services are performed will almost always require withholding from non-residents who come into the state to work (withholding only from the wages for services performed in that state). A few states have exceptions to this, usually based on whether the employee works in the state for less than a certain length of time or earns less than a certain amount of money. For example, if a South Carolina resident works in Georgia, Georgia withholding is required if the work is for a period of more than 23 days during a calendar quarter. In general, an employer is always subject to the laws of any state in which it has an employee performing services, whether or not the employer has facility (such as an office, factory, or store) in the state.

    The employee's state of residence may also need to be considered even if the employee doesn't work there. If the employer has a business connection, also referred to as "nexus", with the state in which the employee resides, then the employer is subject to the laws of that state even if the employee doesn't work there. For example, if the South Carolina resident works exclusively in Georgia for six months, and if the employer has nexus with South Carolina:


    • Georgia withholding is required (the 23-day threshold is exceeded), and
    • South Carolina withholding is required, with a credit for income tax withheld for the work-state (in this case, Georgia).

    In this situation, the employer must first calculate and withhold Georgia income tax. Then the employer must calculate South Carolina income tax on the same wages and, if the South Carolina tax is greater, withhold an amount equal to the dif¬ference between the South Carolina income tax and the Georgia income tax. If the South Carolina tax is less than the Georgia tax, no South Carolina tax need be withheld.

    If, however, the employer does not have nexus with South Carolina, then the employer is not subject to the laws of that state and is not required to withhold that state's income tax. However, the employee may have personal income tax liability on these and all other earned wages by virtue of being a resident of that state.

    Nexus: Business connection
    The word "nexus" literally means "connection." In the withholding context, the employer's concern is whether it has a busi¬ness connection, or any operations, within a state. If it does, it is subject to the withholding tax laws of that state. This will make the difference in whether an employer has to withhold income tax for an employee's resident-state even though he/she performs no services there.

    Nexus is established by having a business presence in a state. An office, store, or factory will create nexus, as will the mere entry of an employee into a state to make a sale or perform a service call. A guide to each state's roles on determining nexus is available by calling the American Institute of Certified Public Accountants at 1-888-777-7077 and asking for product 061057, the State Tax Nexus Checklist Practice Guide. It is free for members of AICPA's tax section, $29 for other AICPA members, and $39 for non-members.

    If an employer doesn't have nexus in a state for which one of its employees will have a personal income tax liability, it can choose to establish a withholding account in that state and begin withholding as a courtesy to its employees. However, the payroll department should check with the corporate tax and legal departments of the company first because once you volun¬tarily register for one tax, you may receive inquiries from the state about other taxes for which you aren't liable, such as sales tax or corporate income tax. Also, in some states, withholding and paying over taxes may thereby establish nexus, making your company open to be sued in the courts of that state.

    Employees working in multiple states without reciprocity
    If an employee works in multiple states that do not have reciprocity with the employee's state of residence, then the amount of wages earned in each state must be separately examined under withholding Rule No. 3. The first step is to split the wages by state, which may be done by the number of hours worked for an hourly employee or days worked for a salaried employ¬ee, or by the sales volume for a commissioned salesperson. The employer will definitely have nexus in the state in which services are performed and will most likely (depending on the state's law) need to withhold the work-state's tax from the wages earned within the state. In addition, if the employer has nexus in the employee's resident-state, it may need to consid¬er withholding for that state from these wages as well.

    There are exceptions to this process under the Amtrak Reauthorization and Improvement Act of 1990. Railroad and motor carrier employees who work in more than one state are subject only to the state and local income tax laws of their state of residence, regardless of where they work. Employees in air transportation are subject to withholding for their state of resi¬dence and any other state in which they earn more than half of their wages.
  • What if employee lives in California, Employer is based out of Georgia However you don't work in either of those states.
    You work 6 weeks in Colorado. 12 months in New York, 9 weeks in Mississippi, !1 weeks in Texas and so on for 6 years. Keep in mind the majority of the time you worked Monday thru Sunday with a rare day off. would all of your overtime be based on your resident home or the state you are currently working in at the time or the state for which your employer is based out of. And your tax deductions are still deducted based on California for which you live?

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