If any of your employees reside in a state different from your company, you must set up your employee's state withholding for at least one of the states, probably both. Those employees should give you a certificate of non-residence for the state where your business is located. To find this form,
The certificate of non-residence form will not be listed as "Certificate of Non-Residence". It might be named with a number, or it could have various titles based on which state it originates from. You should see it listed somewhere on the page.
Some payroll taxes, such as state and local withholding taxes, are based on your employee's residence location as well as the work location. How you set up the state withholding for the employee depends on the relationship between the two states.
For states with reciprocity agreements
Some states have reciprocity agreements. A reciprocity agreement between states means that the employee only pays taxes in one of the states: the state where the employee lives:
See which states have reciprocity agreements
| Business Location | Employee Residence State |
|---|---|
| Arizona | California, Indiana, Oregon, Virginia |
| Arkansas | Texarkana, Texas and Texarkana, Arkansas |
| Illinois | Iowa, Kentucky, Michigan, Wisconsin |
| Indiana | Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin |
| Iowa | Illinois |
| Kentucky | Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, Wisconsin |
| Maryland | District of Columbia, Pennsylvania, Virginia, West Virginia |
| Michigan | Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin |
| Minnesota | Michigan, North Dakota |
| Montana | North Dakota |
| New Jersey | Pennsylvania |
| North Dakota | Minnesota, Montana |
| Ohio | Indiana, Kentucky, Michigan, Pennsylvania, West Virginia |
| Pennsylvania | Indiana, Ohio, Maryland, New Jersey, West Virginia |
| Virginia | District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia |
| West Virginia | Kentucky, Maryland, Ohio, Pennsylvania, Virginia |
| Wisconsin | Illinois, Indiana, Kentucky, Michigan |
If your employee does not give you a certificate of non-residence, the reciprocity agreement does not apply. That means your payroll taxes are calculated as though there were no reciprocity agreement between your work state and your employee's residence state.
For states with no reciprocity agreements
For states with no reciprocity agreements, the employee's withholding is based on both the state of residence as well as the state of employment. You might need to set up withholding for just the work-location state, just the state of residence, or you might need to set up withholding for both states. Find the employee's state of residence in the following lists so you know how to set up withholding:
If your employee lives in one of these states, enter W-4 information for the work-location state only:
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming
If your business is NOT located in one of these states: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming
AND
your employee lives in one of these states, enter W4 information for the work-location state only:
Alabama, Arkansas, Colorado, Georgia, Idaho, Illinois, Louisiana, Mississippi, Missouri, North Carolina, North Dakota, Ohio, Pennsylvania*, South Carolina, and West Virginia
Special rules apply for New Jersey-Pennsylvania and Maryland-Delaware relationships. For questions regarding these states, check with your legal advisor.
If your employee lives in one of these states, enter W4 information for both the work-location state AND the state of residence. We'll calculate the difference and withhold accordingly.
California, Connecticut, Delaware*, Indiana, Iowa, Kansas, Kentucky, Maine, Massachusetts, Minnesota, Nebraska, New Jersey*, New York, Oklahoma, Rhode Island, Utah, Vermont, and Virginia
Special rules apply for New Jersey-Pennsylvania and Maryland-Delaware relationships. For questions regarding these states, check with your legal advisor.
If your employee lives in one of these states, enter W4 information for both the work-location state AND the state of residence:
Arizona, District of Columbia, Hawaii, Maryland*, Michigan, Montana, New Mexico, Oregon, and Wisconsin.
Special rules apply for New Jersey-Pennsylvania and Maryland-Delaware relationships. For questions regarding these states, check with your legal advisor.
In some cases, registering for withholding in a second state can cause you to receive inquiries from that state about other taxes for which you're not liable, such as sales tax or corporate income tax. In some states, withholding and paying over taxes can make your company liable in the courts of that other state. Consider consulting your legal and tax advisors before making the decision to withhold taxes for a state other than your primary work state.
Some employers are required to withhold taxes for the employee's residence state. If you have employees who make sales or perform services in your employee's residence state, you might have the sort of business connection, or nexus, that makes you subject to that state's laws. Alternatively, some employers and employees agree to withhold taxes for the employee's residence state, even though it is not required. That way, the employee does not have to pay estimated taxes or a large tax liability at the end of the year.
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