Remote work has opened up new possibilities for businesses, allowing access to top talent regardless of location. But before you welcome that star candidate from another state, there’s something important to consider: hiring remote employees in different states comes with extra payroll tax responsibilities.
Many businesses don’t realize that bringing on remote workers often means dealing with additional state withholding and unemployment requirements. Don’t worry—it’s manageable! Let’s break it down and discuss how to stay compliant without losing sleep.
Why State Withholding & Unemployment Matter
When you hire a remote worker, the payroll tax considerations change because taxes are typically tied to where the employee works, not where your business is based. Here’s what that means for you:
- State Income Tax Withholding
If your remote worker lives in a different state, you’ll need to withhold income taxes for their state—not yours. That might mean registering your business with the tax authority in their state and staying up to date with any special requirements.
- State Unemployment Insurance
Unemployment insurance is another piece of the puzzle. Each state has its own unemployment program, and you’ll likely need to set up an account and start paying into their system. Rates, deadlines, and rules can vary, so this step takes a little research.
- Local Taxes
Some areas have additional local taxes that you might need to account for. It’s one more reason to be aware of what’s happening in your employee’s location.
Staying Compliant Without the Stress
This can sound overwhelming, but there are ways to handle it without adding extra headaches to your day-to-day. Here are some tips:
- Do a Little Homework
Learn about the tax requirements in the states where your remote workers live. Every state is different, but you don’t need to be an expert—just know the basics and where to register. - Outsource Your Payroll
Handling multi-state payroll taxes is a lot easier when you have a payroll service on your side. We can help with state registrations, filings, and keeping track of deadlines so you don’t have to. - Keep Your Payroll System Up-to-Date
If you manage payroll in-house, make sure your system is set up for multi-state compliance. That might mean upgrading software or working with a consultant to get things right. - Communicate with Your Employees
Let your remote workers know about their tax responsibilities, like filing state income taxes in their state. Good communication can help avoid surprises for both you and your team.
Why Compliance Matters
We get it—tax compliance isn’t the most exciting part of running a business. But skipping these steps can lead to penalties, back taxes, and unnecessary stress. By staying on top of things, you’ll save time, money, and a lot of hassle in the long run.
Let Us Help
If all of this sounds like a lot to manage, you don’t have to do it alone. At KPM CPAs & Advisors, we’re here to help with payroll services that make multi-state compliance a breeze. Whether you need assistance setting up state accounts, filing taxes, or just figuring out what’s next, we’ve got your back.
Remote work is an exciting opportunity for your business—don’t let payroll complications hold you back. Let’s work together to help keep you compliant and focused on what you do best.