Quick overview

Remote worker nexus describes how an employee’s physical work location can create a tax connection between the employer (and sometimes the employee) and a state. That connection may trigger income-tax withholding, payroll tax registration, unemployment insurance contributions, and in certain situations state corporate or sales tax filing responsibilities.

In my practice helping companies and individuals with multi-state tax issues, I frequently see surprises when firms fail to track where people actually work. Remote employees blur old lines that used to be based on company offices, and states have reacted by updating guidance and enforcement approaches to protect tax revenue (see Tax Foundation and Multistate Tax Commission analyses) (https://taxfoundation.org, https://www.mtc.gov).

How does remote worker nexus come into play?

States determine nexus (the legal tie that allows taxation) using statute, administrative rule, and case law. Historically, nexus required a physical presence — an office, employees, or property in the state. Remote work has expanded what states consider “presence.” Key ways remote work can create nexus:

  • Employee physical presence: A single remote employee working from a state can in many states create payroll and income tax withholding obligations for the employer.
  • Payroll tax and unemployment insurance: States usually require employers to register where employees perform work so the employer can remit withholding, pay unemployment insurance (UI) taxes, and follow state wage reporting rules.
  • Corporate or income tax apportionment: Regular employee activity in a state may create a corporate filing requirement or change apportionment factors for state business income taxes.
  • Sales and use tax exposure: In service or digital-economy businesses, employee presence can influence sourcing rules or sales-tax nexus in some states (post‑Wayfair and expanding economic nexus standards) (see Wayfair and state guidance).

All of the above are state-driven. There is no single federal “remote worker nexus” rule — states adopt different thresholds and tests. For general federal resources see the IRS site and for state-by-state analysis see Tax Foundation and Multistate Tax Commission guidance (https://www.irs.gov; https://taxfoundation.org; https://www.mtc.gov).

Common state rules and examples

  • California: Aggressive residency and source rules. California taxes residents on all income and can assert withholding obligations when remote employees perform work in the state. The California Franchise Tax Board provides guidance on residency and withholding (https://www.ftb.ca.gov).

  • Texas: No state personal income tax. Remote employees in Texas generally do not create state income withholding for wages, but employers still must register for unemployment insurance and follow other employer filing requirements (https://comptroller.texas.gov).

  • New York: New York applies an allocation and sourcing approach and may assert nexus where employees work within the state, including for nonresident employees who earn New York-source wage income (https://www.tax.ny.gov).

State differences matter. Employers with remote staff across multiple states should not assume uniform treatment.

Practical compliance steps for employers (a short playbook)

  1. Maintain a location register: Track each employee’s work location(s) by date (office, home, client site). Accurate data is the first line of defense.
  2. Run a nexus assessment: Use state checklists and, when needed, a CPA or tax attorney to evaluate payroll withholding, unemployment insurance, corporate filing, and sales/use tax exposure. (See our State Nexus Checklist for Out-of-State Remote Employees and How to Determine Nexus for State Income Tax Purposes for step-by-step guidance.)
  1. Register early: If an assessment indicates nexus, register for withholding, unemployment, and any required business taxes before payroll errors accumulate.
  2. Update payroll systems: Configure payroll software to apply the correct state withholding rules by employee work location rather than employer headquarters.
  3. Review employment agreements and remote-work policies: Define expectations about primary work location, relocation notice requirements, and expense reimbursement.
  4. Consider reciprocal agreements: Some neighboring states have reciprocal withholding agreements that exempt employees who live in one state but work in another — confirm whether those apply.
  5. Use professional help: Multi-state payroll and compliance can be nuanced; tax advisors can help interpret statutes, administrative guidance, and case law.

Specific issues to watch

  • Short-term travel vs. permanent relocation: Many states tolerate occasional travel without creating permanent nexus, but repeated or long-term remote work can change that analysis. Document dates and reasons for travel.
  • Employee relocations: Employees who move permanently to another state often create withholding and UI registration obligations for employers on the date they start working in the new state.
  • Independent contractors: Independent contractors can also create sales or income tax nexus in some states, and classification rules vary by state.
  • Payroll mistakes are expensive: Retroactive withholding, penalties, and interest can mount quickly if a state determines you owed withholding or UI taxes for prior periods.

For employees: what to expect

  • State resident rules matter: If you change your state of residence, your tax filing obligations change. Many states tax residents on all income.
  • Employer withholding may not match tax liability: If your company does not withhold in the state where you now live, you may have to make estimated tax payments or file and pay when you file returns.
  • Keep records: Maintain proof of where you performed work (calendar entries, VPN logs, expense reports), especially if you have split-location weeks.

Checklist: Assessing remote worker nexus (practical items)

  • Do you have employees working from states other than the company’s home state? Record locations and dates.
  • Does any single employee work full-time from another state? If yes, most states will require registration for withholding and UI.
  • Are any employees traveling regularly to a state for client work? Track frequency and duration — repeated presence can matter.
  • Are you registered for state unemployment insurance and withholding where employees work?
  • Do you have sales/use or business income filing obligations linked to employee presence?

Common mistakes and how to avoid them

  • Assuming your HQ state controls all obligations. Remote work often shifts or creates obligations in other states.
  • Not tracking employee location changes. Use automated tools or simple HR forms to capture moves and remote days.
  • Waiting until a state audit. Proactive registration and voluntary disclosure programs can limit penalties in some states.

Real-world perspective (from practice)

I once advised a growing software firm that hired five remote developers across three states. The company had never registered outside its home state. After a voluntary review they found withholding and unemployment insurance registration obligations and corrected the prior quarters through voluntary disclosures. The cost of compliance was far lower than the projected penalties and interest if a state audit had uncovered the gaps.

When to get expert help

  • You have employees in multiple states (more than two) or in high‑risk states like California or New York.
  • Your business model includes frequent short-term travel and client site visits.
  • You face a state notice or audit about withholding or unemployment insurance.

Consult a CPA or tax attorney experienced in state and local taxation. For general federal guidance see the IRS and for state analyses see the Tax Foundation and Multistate Tax Commission (https://www.irs.gov; https://taxfoundation.org; https://www.mtc.gov).

Frequently asked questions (brief)

  • Do remote workers always create nexus? No. Nexus depends on state rules and the nature, frequency and duration of activity. Some states require only one employee to trigger obligations; others use thresholds.
  • Who pays unemployment insurance when an employee moves states? Typically the employer must register in the new work state and pay UI there; rules vary by state.
  • What about sales tax? Employee presence can influence sales or use tax sourcing. After the Wayfair decision (2018), economic thresholds and presence tests for sales tax changed; employee location remains one of several nexus factors for some states.

Sources and further reading

Professional disclaimer: This article is educational and does not constitute legal, tax, or accounting advice. State laws and administrative guidance change frequently. Consult a licensed tax advisor or attorney for advice tailored to your facts and circumstances.