Quick overview
Employers must act promptly when an employee relocates to a different state. A move can change which state(s) have the right to tax wages and how much should be withheld. Immediate, documented steps reduce compliance risk and make year-end reporting and payroll reconciliation far easier.
This article explains what to check, the actions to take, and common pitfalls, drawing on practical experience and current IRS guidance (see Employer’s Tax Guide, IRS Pub. 15) and state withholding resources.
Sources and official guidance: IRS Employer’s Tax Guide (Publication 15): https://www.irs.gov/pub/irs-pdf/p15.pdf; IRS State Income Tax Information: https://www.irs.gov/businesses/small-businesses-self-employed/state-income-tax-information; Consumer Financial Protection Bureau: https://www.consumerfinance.gov/consumer-tools/taxes/.
Why a move changes withholding
When an employee moves, one or more of these items may change:
- Resident state: The state where the employee is domiciled can tax worldwide wages, subject to credits and agreements.
- Work state: The state where the employee physically performs services can tax wages earned there.
- Employer nexus and registration: You may need to register to withhold and remit in a new state and file quarterly returns.
- Reciprocal agreements or credits: Some states allow residents to avoid withholding by the work state or provide credits to avoid double taxation.
In practice, I’ve seen small employers assume payroll stays the same and then face sizable state liabilities and interest because they weren’t registered to withhold in the new state.
Step-by-step checklist for employers
Follow these steps immediately after learning an employee has moved:
- Get the facts from the employee
- New state of residence and effective date of move.
- Whether the employee will continue working in the prior state (commuting, hybrid schedule) or only in the new state.
- Updated Form W-4 or any state equivalent withholding certificate.
- Confirm tax nexus and registration
- Determine whether you must register with the new state’s withholding agency; many states require registration before withholding and remittance.
- If you have been withholding for the old state, confirm whether you should stop and what the last withholding date is.
- Apply reciprocal agreements or credits
- Check whether a reciprocal agreement exists between the old and new state (for example, several neighboring states have reciprocity). See our deep dive on [State Reciprocity Agreements](
