GLOBAL PAYROLL MAGAZINE
69
The employee is taxed in both states, but not double-taxed.
“There may be instances that require withholding tax for both the resident state and the nonresident state.” Employers entering the U.S. for the first time should be deliberate, careful, and do a lot of research to be better informed of their full U.S. employment taxation responsibilities. This high-level introduction to a few key aspects of U.S. state income tax just scratches the surface for Payroll but, hopefully, it is helpful as a start.
Note that an employee working in another state can, in some instances, trigger tax nexus for a business that may not already be operating in that state. Nexus, for our purposes here, means “business connection.” Using global tax terminology, this is much like a business being required to set up a permanent establishment, except on a state level. Each state has its own test of facts and circumstances to consider creating nexus for a company. Under reciprocal agreements, if the employer does not have nexus in the employee’s resident state (and the employee did turn in the nonresident certificate), the employer would not withhold any state income tax. The employee would be responsible for paying and filing taxes to their resident state with their individual return.
Author: Fred A. Basehore
Fred A. Basehore, Jr., CPP is the owner of F.A. Basehore & Associates, offering Payroll/Payroll Tax Consulting Services. Over the past five decades, He has leveraged his extensive Payroll experiences to the benefit of his employers and the overall Payroll community. Formerly, Fred was Sr. Director of Payroll Tax & Compliance for Guidehouse Inc., and this followed several years at KPMG’s employment tax group. As an active member of the former American Payroll Association, Fred, who was that organization’s Payroll Man of the Year in 1992, traveled the country speaking and teaching Payroll professionals about tax compliance and other key Payroll issues.
For any consulting needs, contact Fred by email: fabjrcpp@yahoo.com
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