How does state tax withholding work when you work temporarily in multiple states?

Working temporarily in another state — whether for a week-long assignment, a few months of travel nursing, or remote work from a second location — changes how state income tax is withheld from your paycheck. Employers, state laws, and the worker’s residency status all matter. This guide explains the basic rules, steps to protect your paycheck, real-world examples, filing tips, and where to look for authoritative information.

Core principles: resident vs. nonresident withholding

  • Resident state taxation: Your state of residence generally taxes all your income (worldwide income) and then allows a credit for taxes you paid to other states on the same income. This prevents double taxation in most cases.

  • Nonresident state taxation: States where you perform work typically tax income earned there. If you physically work in State B while living in State A, State B has the right to tax the income earned within its borders.

  • Employer vs. location: Employers usually withhold based on either the employee’s work location or the employer’s payroll location — but state law can require withholding for the state where the work is performed. Payroll teams can get this wrong when an employee temporarily works outside their normal state.

(For authoritative overviews see IRS Publication 505, Tax Withholding and Estimated Tax, and your state revenue departments.)

Common state rules and special cases

  • Reciprocity agreements: Some neighboring states have formal reciprocity. If your resident state has a reciprocity agreement with the work state, you often pay taxes only to your resident state and complete a withholding exemption form for the nonresident state. For a deeper look, see our guide on State Reciprocity Agreements: When You Can Avoid Double Withholding.

  • Day-count and short-stay rules: Several states use day-count thresholds or short-duration exemptions to limit nonresident tax for brief stays. The thresholds vary by state; you must check each state’s rules. Keep precise records of dates and locations.

  • “Convenience of the employer” rules: A few states (notably New York) apply a “convenience of the employer” rule for telecommuters — treating income as earned in the state if the remote work was for the employee’s convenience rather than required by the employer. This can create surprising tax liability for telecommuters. Confirm with the relevant state tax authority and see state guidance for details.

  • Local taxes and special payroll withholding: In addition to state income tax, some cities and counties levy local income taxes that are withheld separately.

Practical steps to avoid under- or over-withholding

  1. Tell payroll exactly where you will be working. Give HR dates and locations so they can apply the correct state tax withholding.

  2. Complete the correct state withholding forms. Many states have their own version of a state W-4 or a nonresident withholding certificate. If you qualify for exemption under reciprocity, submit the nonresident exemption form to your employer.

  3. Track days and work locations. Use a simple spreadsheet or calendar to log travel dates, where you physically worked, and hours on assignment. These records are critical when filing nonresident returns or disputing incorrect withholding.

  4. Review paystubs every pay period. Check the state taxes withheld and raise discrepancies with payroll ASAP. Small mistakes early in the year compound into big refunds or tax bills later.

  5. Make estimated tax payments if needed. If your employer cannot withhold the right state tax, or you have freelance income in multiple states, use estimated payments to avoid penalties.

  6. Keep all supporting documentation. Contracts, assignment letters, travel itineraries, and timesheets can support your position if a state questions your resident status or allocation of income.

Filing and claiming relief

  • File nonresident returns where required: If a state taxed income you earned there, you’ll usually need to file a nonresident return to report and reconcile withheld amounts.

  • Claim credit on your resident return: Most states offer a credit for income tax paid to other states on the same income. That reduces or eliminates double taxation for the same earnings.

  • Request refunds where appropriate: If your employer withheld in the wrong state, file the nonresident return (or resident return with credit) to claim a refund. You may also request reimbursement from payroll if withholding was clearly incorrect and you can show supporting documentation.

  • When to consult a pro: If you have multiple states, high income, or complex assignment patterns, a CPA or state-tax specialist can prevent costly mistakes. In my practice, proactive coordination with payroll and an early filing strategy often produces refunds without audit risk.

Example scenarios (typical outcomes)

  • Short business trip: If you live in State A and take a 3-day assignment in State B, State B usually taxes the income earned there. You file a nonresident return for State B and then claim a credit on your resident return in State A.

  • Temporary remote work across a border: If you live in one state and routinely work for several weeks from a second state, payroll must withhold according to where you physically work unless a reciprocity agreement or special exception applies.

  • Common telecommuter surprise: A remote employee worked from State B for several months without notifying payroll; the employer withheld only for State A. The worker later owed back taxes to State B for the period worked there. This is avoidable with timely notice to payroll and careful recordkeeping.

How employers typically handle it (and what can go wrong)

Employers with centralized payroll often default to withholding for the company’s home state. That’s efficient but inaccurate for employees working elsewhere. Small employers or staffing agencies may be slower to adapt to multi-state work and may not enroll for withholding accounts in every state. When an employer refuses or cannot withhold in a particular state, the employee may be responsible for estimated payments.

Employers also face administrative burdens and possible penalties for incorrect withholding — another reason to be clear and early about temporary work locations.

What to include when you contact payroll or a tax pro

  • Exact dates you were physically working in each state
  • Job description or assignment letter showing the temporary nature
  • Home address and any proof of permanent residence
  • Copies of relevant paystubs and W-2s
  • Any state withholding exemption forms you already submitted

Useful resources and references

  • IRS, Publication 505, Tax Withholding and Estimated Tax (for federal withholding context and estimated payment rules)
  • Your state’s Department of Revenue website (search “nonresident tax” or “withholding” for state-specific forms)
  • National Association of State Workforce Agencies (NASWA) for inter-state payroll guidance

For further reading on closely related topics, see our articles on State Tax Withholding and Multistate Filing for Remote Workers: Residency and Withholding.

Common mistakes to avoid

  • Failing to tell payroll before you travel or change work location.
  • Assuming reciprocity exists — not all neighboring states have agreements.
  • Throwing away travel records or timesheets that prove where you worked.
  • Ignoring local (city/county) income taxes.

Quick checklist before tax season

  • Gather paystubs showing state withholding.
  • Pull travel logs and assignment letters.
  • Determine which states you need to file in and whether you’ll claim resident credits.
  • Calculate or consult about any estimated tax shortfalls.

Final practical tips from the field

  • Start conversations early with payroll: many issues are administrative and fixed with timely communication.
  • When you expect frequent multi-state work, discuss payroll options such as additional withholding or voluntary state-specific withholding to smooth cash flow.
  • If you’re a contractor or freelancer, plan estimated payments for each state where you have tax liability.

Professional Disclaimer

This article is educational and general in nature. It does not replace advice from a licensed tax professional. State tax rules change, and your individual facts may produce different results — consult a CPA or state tax adviser for guidance tailored to your situation.

Sources

  • IRS Publication 505, Tax Withholding and Estimated Tax
  • IRS guidance on withholding and employer responsibilities
  • National Association of State Workforce Agencies (NASWA)