When an Employee Lives In Another State, with Craig Cody

Episode 15:

Employee lives in another state? Expert Craig Cody explains the complex tax and compliance issues when hiring remote employees. Hear insights about:

  • How hiring out-of-state employees and the increasing prevalence of remote work can impact your taxes and cause compliance issues you need to know about
  • Why the first thing you’ll need to do is register with your employee’s home state for withholding tax and potentially unemployment tax
  • Why compliance requirements may vary from state to state, and why there may be various types of insurance you’ll need to have depending on the state
  • Why you should also research what types of leave coverage you may be required to have, and why an experienced CPA or a trusted payroll company can help
  • Why more often than not, you’ll also need to register in your employee’s home state as a “foreign corporation”
  • Why most states will require a minimum tax amount you’ll have to pay, depending on your organization’s entity type
  • How each state uses its own unique formula to determine how much of your income you’ll need to allocate to that state
  • Why many businesses “flew under the compliance radar” in the past, and why the pandemic and growth of remote work is likely to result in increased compliance scrutiny
  • How hiring out-of-state employees may create personal filing responsibility for you in the employee’s home state

Employee Lives In Another State: Tax and Compliance Concerns

With the global pandemic, more and more employees are working remotely. When you have an employee that is working in a different state, it can create some very important tax compliance issues that you need to be aware of. In this week’s episode of the Progressive Agency podcast, I go over some of these concerns and explain key concepts that often differ from state-to-state.

What to Know When an Employee Lives In Another State

If you hire an employee that resides in a different state from the home state of your business, you’ll need to register with that employee’s state for the purposes of withholding tax, and possibly even unemployment tax. You may be required to have various forms of insurance as well. Most states will have a minimum tax you’ll need to pay, and each state’s requirements for payment vary.

Working closely with an experienced CPA or a payroll company can help you navigate these requirements and ensure that you’re compliant with your employee’s home state tax rules. Though in the past, many businesses failed to take these steps and managed to fly under the radar, the increase in remote work due to the global pandemic means that many states are beginning to crack down on non-compliant businesses. Doing the necessary work to ensure that you’re meeting the requirements when an employee lives in another state can save you a huge headache down the road.

If you’d like to learn more about out-of-state tax and compliance issues, please feel free to reach out to me. And as always, please visit my Progressive Agency podcast archive at https://craigcodyandcompany.com/agency-podcast/ for more informative, money-saving podcast episodes like this one.

Employee Lives In Another State

Additional Resources:

About Craig Cody:

Craig Cody is a Certified Public Accountant, Certified Tax Coach™, business owner, and the host of The Progressive Dentist Podcast and The Progressive Agency Owner Podcast. Prior to his current work, Craig spent seventeen years with the NYPD, where he retired as a Lieutenant in September 2000. Craig is an expert in helping his clients legally reduce their tax liabilities and keep more of their money. Through his podcast, Craig helps dentists grow their practices through smart financial decisions and through financial education of the kind that isn’t offered in dental school.