Quick overview

Remote work can create payroll and employer tax obligations in states where employees live or perform services. Employers must map employee locations, test for nexus, and register for state withholding, unemployment insurance (UI), and any required local taxes. In my 15 years advising employers, skipping these steps has led to surprise assessments, interest, and penalties — but a systematic approach prevents those problems.

Why this matters now

Since the pandemic expanded remote work, states have updated rules and enforcement. Some states apply reciprocity or short-term exemptions, while others use broad nexus definitions that treat remote employees as creating a taxable presence. The Federation of Tax Administrators and many state revenue departments recommend that employers evaluate remote-work locations continuously (taxadmin.org).

Step-by-step employer registration checklist

Below are the practical steps most employers should follow when they hire or allow remote workers to work from a state other than the company’s home state.

  1. Map employee work locations and collect documentation
  • Collect exact work addresses and primary work days for every remote employee. Ask employees to confirm their home work address in writing and update this record when they change locations. Keep time-stamped location logs for hybrid employees.
  • Why it matters: Withholding and UI obligations generally follow where the employee performs services, not where the employer is located (state DoR guidance).
  1. Determine employee tax status (resident, nonresident, or statutory)
  • Classify whether the employee is a resident of the state, a nonresident performing services in the state, or a statutory resident. Residents generally owe full state tax; nonresidents may owe tax only on state-source income.
  • Tip: Reciprocal agreements between neighboring states (for example, PA–NJ, MD–VA in some cases) can change withholding obligations. Check current lists on state DoR sites.
  1. Test for nexus and other triggers
  • Nexus is a legal standard that determines whether your business has enough presence in a state to be subject to tax or registration obligations. Remote employees can create payroll nexus, corporate income tax nexus, and other filing triggers.
  • Typical nexus triggers from remote employees include: regularly scheduled remote work, long-term teleworking by a single employee, and having multiple remote employees in a state. States differ on thresholds; there is no single federal rule. See our glossary on “Remote Worker Nexus: Complying with Multi-State Tax Rules” for deeper guidance: https://finhelp.io/glossary/remote-worker-nexus-complying-with-multi-state-tax-rules/.
  1. Register for state withholding accounts
  • Once a nexus/registration obligation exists, register for a state withholding account through the state’s Department of Revenue (or equivalent). Registration typically yields a state employer withholding tax ID and instructions for deposit schedules.
  • Expect to provide your federal EIN, business formation documents, NAICS code, and projected payroll. Some states allow online self-registration; others require paper forms or a separate visit to the state labor department.
  1. Register for state unemployment insurance (UI)
  • UI accounts are generally handled by state workforce or labor agencies rather than revenue departments. Employers must register and report wages for UI and typically pay quarterly UI taxes where employees work.
  • Note: UI experience rating and tax rates vary by state. Registering late can cause retroactive assessments and higher rates.
  1. Register for local taxes where applicable
  • Cities and counties may require local payroll taxes, occupational privilege taxes, or municipal filings. Research local obligations for any city where employees live or work.
  1. Update payroll systems and withholding policies
  • Update employee state tax withholding elections and payroll codes. In multi-state setups, map each employee to the correct withholding state and deposit schedule.
  • If you use a payroll provider or PEO, confirm that their service covers the states where your people are located and that they will register on your behalf if needed.
  1. Collect state-specific forms from employees
  • Some states require a state W-4 equivalent or employee withholding allowance form. Provide and collect these promptly to set correct withholding.
  1. File required returns and remit deposits
  • Follow each state’s deposit frequency (monthly, quarterly, semi-weekly) for withholding and file payroll returns as required. Maintain a filing calendar for every jurisdiction where you have employees.
  1. Reconcile, audit, and maintain records
  • Reconcile payroll withholding with state returns each quarter. Keep records of registrations, employee statements of work location, and correspondence with state agencies for at least the period required by law (often 3–7 years).

Employer actions by specific topics

  • Federal EIN: Ensure your federal EIN is active and used consistently on all state registrations.
  • Workers’ Compensation: Remote employees may trigger workers’ comp requirements in their state — file and procure coverage per that state’s rules.
  • State Disability Insurance (SDI): Some states (e.g., CA, NY, NJ, RI, HI) have state disability or paid family leave programs with employer contributions.
  • Local payroll taxes: Municipal taxes (e.g., New York City, Philadelphia) can require separate registrations and filings.

Timing and practical timeline

  • Immediate (Day 0–30): Collect addresses, confirm resident status, and check reciprocity rules.
  • Short term (30–60 days): Register for state withholding and UI accounts where required; update payroll provider.
  • Ongoing (quarterly/annually): File withholding and UI returns; monitor employee moves and update registrations.

Common state-level variations and examples

  • New York: NY applies a “convenience of the employer” rule in some situations that can create NY-source wages for remote work done outside NY if the telework is for the employee’s convenience. This rule can cause withholding even when the employee is out-of-state; treat NY cases as high-risk and confirm facts with counsel or payroll specialists.
  • Reciprocity states: If you have employees crossing reciprocal-state lines (e.g., Maryland–Virginia, Minnesota–North Dakota), check current reciprocal agreements to avoid unnecessary withholding.
  • Short-term exceptions: Several states have short-term or de minimis rules for remote work (often for days up to 30–90 days). These vary significantly — always confirm with the relevant state DoR.

Penalties and risks

  • Late registrations or missed withholding can lead to back taxes, interest, and penalties for both withholding and unemployment taxes. States may assess both employer and employee portions of payroll taxes retrospectively.
  • In my practice I’ve seen audits triggered after an employee moved out-of-state and the employer failed to register — resulting in retroactive withholding assessments covering multiple years. Early registration is the least costly path.

Practical tips and best practices

  • Use a centralized employee-location register that updates automatically when HR changes an address.
  • If you plan to grow remote headcount, budget for multi-state payroll administration or a PEO that handles registrations and filings.
  • Do not rely solely on employee self-certification; require a signed telework agreement that states the primary work location and expected schedule.
  • Keep a list of state DoR and labor department contacts for escalation — states sometimes allow penalty abatement for prompt voluntary disclosure.

Tools and resources

Documentation and authoritative sources

  • Internal Revenue Service — federal employer ID and general employer guidance: https://www.irs.gov (see employer tax pages and Publication 15 for federal withholding basics).
  • Federation of Tax Administrators — state tax administration resources: https://www.taxadmin.org.
  • State Department of Revenue and Workforce/Labor agencies — for state-specific withholding, UI, and employer registration forms.

Frequently asked practical questions

  • “Who files?” The employer is generally responsible for withholding and remitting state income tax and employer UI tax in the states where the employees perform services.
  • “What about independent contractors?” Contractors are typically not subject to employer withholding, but they may create a sales tax or economic nexus risk for the business; verify classification carefully.
  • “Can payroll providers register for me?” Many payroll vendors can register employers in new states, but confirm in writing that the vendor will handle registrations, deposits, and filings (and whether there are additional fees).

Final checklist for first-time remote-state registration

  • Gather employee addresses and signed telework confirmations.
  • Check each state for withholding and UI registration requirements.
  • Register for state withholding and UI accounts where required.
  • Update payroll and collect state withholding forms.
  • File deposits and returns on the state schedule.
  • Maintain records and monitor changes.

Professional disclaimer

This article provides general information about state employer registration and payroll obligations for remote employees. It is educational and not individualized tax or legal advice. For personalized guidance, consult a licensed tax professional or employment attorney who can review the facts specific to your business and state(s).