1. Arlene Baker Principal Tax Instructor Paycor, Inc.
Multi State Taxation
Arlene Baker
Principal Tax Instructor Paycor, Inc.

2. What is Multi State Taxation?
Multi- State taxation is when you the employer, have work site locations in multiple states.

3. Question to determine Income tax withholding
What state is the work location?
What are the work in states where services are performed?
What are the Employee(s) residential states?
Do you have a business connection (nexus) for residential states?
Do the states have reciprocity agreements?

4. Key Terms for State TAXATION
Withholding Agent – When an employer withholds tax from its employees for a particular state/locality and remits the withholdings to that state /locality, they are said to be a withholding agent for that state /locality. Residential Tax – State/Locality income tax withheld based on where the employee lives. Occupational Tax – State/Locality income tax withheld based on the business location where the employee works. Reciprocity– For States - When a work in state has an agreement with the residential state for income tax withholding. For Locality -When the work in locality grants credit towards the percentage of the residential locality
All employers are required to be a withholding agent for the states/ locality where they are doing business.

5. States withholding forms

6. States without income tax withholding

7. New hire Filing FEIN Employer’s name Employer’s address
New Hire reporting is a process by which you, as an employer, report information
on newly hired employees to a designated state agency shortly after the date of
Hire.
States can use the new hire information for the following tasks:
Accelerate the child support income withholding order process
Collect child support from parents who frequently change jobs
Locate non-custodial parents
Detect fraudulent recipients of unemployment insurance
Prevent and stop unlawful welfare assistance
Stop false workers’ compensation claims
FEIN
Employer’s name
Employer’s address
Employee’s full name (first, middle, last)
Employee’s address
Employee’s SSN
Date of hire
You hired an employee. You had them fill out Form W-4 and Form I-9. They read the employee handbook. You put them through training.
That’s all you have to do, right?
Did you know that you also have to report your new hire to your state within a short amount of time? This process is called new hire reporting. So, what is new hire reporting?
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) requires you to report all newly hired employees to your state. The Act also applies to any employees you rehire.
Federal law does not require you to report independent contractors. However, some states require you to report independent contractors.
New hire reporting applies to all private, public, government, and not-for-profit employers. No business is exempt from reporting.
It is estimated that more than 30 percent of child support cases involve parents who do not live in the same state as their children. By matching this New Hire data with child support case participant information at the national level, the Office of Child Support Enforcement assists states in locating parents who are living in other states. Upon receipt of New Hire information from other states, state child support agencies can take the necessary steps to establish paternity, establish a child support order, or enforce an existing order.

8. What state Income tax Do I withhold?

9. What state to Withhold?
Default Rule – Withhold the state where the services are being performed. Define Resident - What state is the employee’s resident. Reciprocity (work in credit)- Reciprocal agreement allows the employer to withhold for the employee’s state of residence. Resident/Nonresident Taxation Policies - If an employee is a resident of one state but performs services in another state and there is no reciprocal agreement you must withhold the work in state first and then consider the live in state rules for additional withholding requirements.
Record each Payroll for the month and total for the quarter.
This will reconcile to your 941 (that is the idea)

10. Default Rule
The Book Store has one location in Kentucky. An employee, Mike, works in Kentucky and lives in Missouri.
The Book Store is only a withholding agent for Kentucky.
The Book Store has one location in Kentucky. An employee, Mike, works in Kentucky and lives in Missouri. The Book Store is only a withholding agent for Kentucky.
Kentucky– Occupational State
Missouri - Resident State
Withholding for Nonresidents —Kentucky employers are required to withhold Kentucky income tax from wages paid to nonresidents for services rendered in Kentucky.
The employer is not a withholding agent.
Reciprocity- Not Applicable with Missouri

11. Multistate –Define Resident
Laptop, Inc. is located in Massachusetts and Connecticut. Steve works in Massachusetts and lives in Connecticut.
Massachusetts– Occupational State
Connecticut - Resident State
Withholding for Nonresidents —Any employer in the state of Massachusetts is required to withhold the Massachusetts tax from wages paid to nonresidents for services performed within the state.
Residents Working Outside the State -While all wages of a Connecticut resident are subject to Connecticut income tax, regardless of where they are earned, employers are required to withhold from the resident's wages only to the extent that it exceeds the amount required to be withheld by the other state for services performed there.
Massachusetts Reciprocity- There are no reciprocal agreements between Massachusetts and other states or jurisdictions
The employer is required to withhold Massachusetts because it says tax for services performed in the state. Being a withholding agent for Connecticut you would also look at Connecticut's tax rule.
MA tax would calculate MA first – where services are performed
CT would calculate the tax and subtract the MA. If the amount for CT is greater then the difference would be withheld.
Massachusetts - Non Resident
Any employer in the state of Massachusetts is required to withhold the Massachusetts tax from wages paid to nonresidents for services performed within the state.
Residents of Massachusetts subject to withholding in other jurisdictions must have Massachusetts tax withheld less the amount required to be withheld within that jurisdiction.
Reciprocity
There are no reciprocal agreements between Massachusetts and other states or jurisdictions.
Connecticut-Resident
Employers must withhold Connecticut income tax from wages earned by nonresidents within the state. Any employer for federal income tax purposes who maintains an office or transacts business within the state must withhold Connecticut income tax.
While all wages of a Connecticut resident are subject to Connecticut income tax, regardless of where they are earned, employers are required to withhold from the resident's wages only to the extent that it exceeds the amount required to be withheld by the other state for services performed.
None

12. States with Reciprocity
Sally’s Salon is located in Ohio and Michigan. Sally works in Ohio but lives in Michigan.
Ohio – Occupational State
Michigan - Resident State
Withholding for Nonresidents —Employers must withhold Ohio income tax from the wages of nonresidents for services performed within the state.
Residents Working Outside the State —Michigan employers with a Michigan resident who work temporarily in another state must withhold Michigan income tax for work done in the other state.
Ohio Reciprocity — Ohio has reciprocal agreements with Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. Employers in Ohio and all participating states must withhold income tax from the state of the employee's residence.
Nonresident employees working in Ohio must present employers with a completed Form IT-4-NR, Employee's Statement of Residency in a Reciprocity State, to claim exemption from withholding.
Sally’s Salon is to withhold Michigan state income Tax. They are a withholding agent and the two states have a reciprocal agreement.
Many states require a certificate of non-residence for the state the employee works before the employer can honor the reciprocal agreement
State
Ohio -Non Resident
Employers must withhold Ohio income tax from the wages of nonresidents for services performed within the state. Income must be appropriately allocated for nonresidents working inside and outside of Ohio in order to determine the amount of Ohio withholding.
Ohio residents are not subject to Ohio state withholding when performing services in a different state if they are subject to the other state's income tax withholding requirements.
Reciprocity
Ohio has reciprocal agreements with Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. Employers in Ohio and all participating states must withhold income tax from the state of the employee's residence. Nonresident employees working in Ohio must present employers with a completed Form IT-4-NR, Employee's Statement of Residency in a Reciprocity State, to claim exemption from withholding.
Michigan -Resident
Employers must withhold Michigan income tax from wages of nonresidents whose earnings are from services performed within the state.
Michigan employers that assign a Michigan resident employee to work temporarily in another state must withhold Michigan income tax from compensation paid to the employee for work done in the other state. If the other state taxes wages earned in that state, the Michigan resident may claim a credit on the Michigan income tax return for the taxes paid to that state.
Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin whereby Michigan employers are not required to withhold. Michigan employees working in reciprocal states must furnish and file certificates of Nonresidence (there are no state provided certificates) with their employer to be exempt from that state's withholding.

13. Resident/ Nonresident Taxation
The Widget Company is located in Indiana and Illinois. Sam lives in Indiana and works in Illinois.
Illinois – Occupational State
Indiana- Resident State
Withholding for Nonresidents — Nonresidents are only subject to withholding for wages earned within the state.
Residents Working Outside the State — Employers with Indiana residents who work in other jurisdictions should, but are not required to, withhold taxes for Indiana from wages earned regardless of the withholding obligation to the other state or jurisdiction.
Reminder- The employer is still required to withhold the residential county tax.
Illinois Reciprocity — Residents of Iowa, Kentucky, Michigan, or Wisconsin are not subject to Illinois withholding tax even if compensation is earned in Illinois. To be eligible, residents of the participating states must file Form IL-W-5NR, Employee's Statement of Non-residence in Illinois
Sally’s Salon is to withhold Michigan state income Tax. They are a withholding agent and the two states have a reciprocal agreement.
Many states require a certificate of non-residence for the state the employee works before the employer can honor the reciprocal agreement
State
Ohio -Non Resident
Employers must withhold Ohio income tax from the wages of nonresidents for services performed within the state. Income must be appropriately allocated for nonresidents working inside and outside of Ohio in order to determine the amount of Ohio withholding.
Ohio residents are not subject to Ohio state withholding when performing services in a different state if they are subject to the other state's income tax withholding requirements.
Reciprocity
Ohio has reciprocal agreements with Indiana, Kentucky, Michigan, Pennsylvania, and West Virginia. Employers in Ohio and all participating states must withhold income tax from the state of the employee's residence. Nonresident employees working in Ohio must present employers with a completed Form IT-4-NR, Employee's Statement of Residency in a Reciprocity State, to claim exemption from withholding.
Michigan -Resident
Employers must withhold Michigan income tax from wages of nonresidents whose earnings are from services performed within the state.
Michigan employers that assign a Michigan resident employee to work temporarily in another state must withhold Michigan income tax from compensation paid to the employee for work done in the other state. If the other state taxes wages earned in that state, the Michigan resident may claim a credit on the Michigan income tax return for the taxes paid to that state.
Michigan has reciprocal agreements with Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin whereby Michigan employers are not required to withhold. Michigan employees working in reciprocal states must furnish and file certificates of Nonresidence (there are no state provided certificates) with their employer to be exempt from that state's withholding.

14. State Taxable Wages

15. State taxable Wages
Pretax – Deductions included in the cafeteria 125 plans ex: health, dental etc. (except New Jersey) Deferred Compensation – Deductions included in retirement, programs. Ex. 401k, 403b etc. (except Pennsylvania) HSA payroll deductions do not reduce taxable wages for the following states: California New Jersey

16. State Non-Taxable wages
Group Term Life
PA Not Taxable
Moving Expenses
AL- New Job must be in the State
PA - Exempt if expenses are “ordinary and necessary business expenses
Educational Assistance
AL- Job related Not taxable
NJ - Job related, non taxable
PA – Job Related excluded if the education is required by law or by the employer

17. States Deductions reduce taxable
Pretax – Deductions included in the cafeteria 125 plans ex: health, dental etc. (except New Jersey) Deferred Compensation – Deductions included in retirement, programs. Ex. 401k, 403b etc. (except Pennsylvania) HSA payroll deductions do not reduce taxable wages for the following states: California New Jersey

18. State W-2 Filing

19. W-2 Electronic filing due dates
Most states have followed the federal accelerated date by changing the W-2 due date to January 31st. Exceptions Hawaii Kansas Minnesota New Jersey New Mexico Oklahoma

20. State Local Taxes

21. State Local Taxes
Some local governments choose to impose taxes in addition to federal and state taxes. It is not a common practice across the country; the only states that have widespread use of local taxes are Pennsylvania, Ohio, Kentucky, Indiana and Michigan. A handful of cities in other states also have local taxes.
After payroll processing, your accounting department posts payroll transactions, such as salaries, wages and payroll taxes and other expenses, to the correct financial accounts.

22. Ohio Locals
Ohio city taxes are generally occupational. An employer is required to withhold city taxes from all of its employees that work in a taxing locality. Sometimes an employer must also withhold Ohio city tax based on the employee’s residence. Most Ohio cities require that employers withhold taxes on employees who are residents if the company has a location or files a corporate tax return with that city. If the employee works in another locality, the resident city will often extend credit (known as reciprocity) for the occupation city tax withheld. Taxable Gross – 125 plans Residential Ohio city taxes often reciprocate – fully or partially – with occupational locals. Many Ohio cities even reciprocate with out-of-state localities, of Kentucky city and county taxes. . If the residential locality has a higher tax rate than the occupational tax it reciprocates with, the result may be a partial withholding of the residential tax.

23. Kentucky Locals
Generally, Kentucky local taxes - city and county - are calculated on an employee’s total gross wages; no earnings are exempt from tax. Also as a general rule, city taxes are accompanied by a county tax. However, a county or a city may not have a tax but is unusual to have one without the other Kentucky local taxes are occupational taxes. City and/or county taxes are withheld from employees who work in Kentucky based on the location of the company. (Some localities do have a residential portion to their school district tax. However, it is only withheld if the employee lives and works in that locality.) Examples: Boone County and Scott County

24. Michigan Locals
Michigan taxes are occupational first and then based on residency of the employee. An employer is required to withhold city taxes from all of its employees that work in a taxing locality. Michigan employers must determine if the employee lives within or outside the city limits. This will determine the rate of withholding for each employee. Michigan locals taxable wages = Gross – 125 plans , 401k and allowance credit

25. Multistate Unemployment
If an employee performs all services in one state, the employer pays unemployment to that state.
If the employee performs services in more than one state, there are four factors used to determine which to state the employer is to pay unemployment.

26. Multi State Unemployment
1. Localization of Services
Services are considered localized within a state if any work done outside of that state is only incidental services are considered localized within a state if any work done outside of that state is only incidental. Unemployment insurance need only be paid to the state in which services are localized.
Unemployment insurance need only be paid to the state in which services are localized.
Employee is based in Wisconsin and performs most services in Wisconsin. The employee is working temporarily in Indiana, which is under the Illinois office’s direction.
Where should unemployment be reported?
Wisconsin

27. Multi State Unemployment
2. Base of Operations for the Employee
If an employee typically works in more than one state, then the employer must determine if the employee has a base of operations in one of those states.
A base of operations can be the place where they report to work or return from work, or where they receive mail, supplies or direction.
If an employee has a single base of operations in a state they work in, then that state would have jurisdiction and would receive unemployment taxes.
An employee has an office in Nevada where they receive mail and supplies, and calls on clients in Nevada, California, and Arizona.
Nevada

28. Multi State Unemployment
3. Direction or Control
If there is no localization or base of operation does the employee get their direction or control from one of the states they are working.
An employee with no localization or base of operations and a travels to other work locations in Georgia, Florida, and Alabama who reports to a manager whose office is located in Florida.
Florida

29. Multi State Unemployment
4. Employee’s State of Residence
If none of the other factors apply, the employee’s state of residence is to be used if the employee performs work there.
An employee has clients located in Oklahoma and Kansas does not have any localization, a base of operations, or direction from Texas control. The employee lives in Louisiana, and performs some services in Louisiana.
Louisiana

30. Multi State Unemployment
Reciprocal Coverage Arrangements In some situations the employer can choose the state to which unemployment insurance is paid. All but three states (Montana, Minnesota & Louisiana) participate in reciprocal coverage arrangements. Allison has total earnings of $13, Allison worked in Ohio and wages earned were $9, Allison has been transferred and now works in Arkansas.
State
Total Earnings
Taxable Wages
Ohio
$9,850.00
$9,000.00
Arkansas
$3,693.00
$3,000.00

31. State Disability Insurance
5 states plus Puerto Rico provide State Disability Insurance to employees who out of work due to a non-work related injury or illness.
The disability tax is based on where the employee works.

32. State Disability Insurance
5 states plus Puerto Rico provide State Disability Insurance to employees who out of work due to a non-work related injury or illness. The disability tax is based on where the employee works.

33. Unemployment SUR Charges
Surcharges go to supplement the unemployment funding for additional programs for the unemployed.
The programs are centered on educational programs to assist the employee in finding a new position.

34. Unemployment SUR Charges
Surcharges go to supplement the unemployment funding for additional programs for the unemployed. The programs are centered on educational programs to assist the employee in finding a new position.

35. State Income Tax Audit Flags1.
The state where the employees perform services is actively engaged in withholding tax audits 9.
The company holds a corporate lease for use by employees 2.
Vehicles or equipment with company’s logo is present in the jurisdiction.
10.
Employees own/lease residential property,, hold Drivers license or registered to vote in state other than reported on W-2 3.
Officers presence in a state is easily documented, public records, stockholder meetings
11.
Unemployment insurance paid to the state but no income withholding 4.
Sales and Use tax paid to state but no income withholding reported
12.
Wage and tax adjustments filed with one taxing jurisdiction and not another. IRS has an agreement with a number of state to share tax audit findings 5.
Wages on W-2 to state but no locality
13.
Accounting records reflect a tax reserve for liabilities connected to underreported wages and income tax. 6.
Expense reports show travel to the state/locality
14.
The company is under contract with the State/local to provide goods/service 7.
Accounts payable shows relocation or other out-of-state costs
15.
Independent Contractors are substantially used in the state, even if the company is not doing business in the state 8.
A parent subsidiary in more than one state other than parent company

36. ThE End Not really! …More things to think about Minimum Wage
Sick Pay Policy
Pay Stub Compliance
Direct Deposit/ Pay Card Compliance
Paying Terminated Employees
Voluntary /Involuntary Deductions from Pay
Escheatment Laws

37. Questions Arlene Baker Principle Tax Instructor Paycor, Inc
Reference Materials:
American Payroll Association
BNA Payroll Guide
And lots of other websites
Deloitte Multi State Webinar
Arlene Baker
Principle Tax Instructor
Paycor, Inc