If your employee lives in one state but works in another, or works remotely for your business in a different state, you must account for multi-state taxes on their pay stubs. Proper handling ensures compliance and avoids payroll errors.
1. State Income Tax Withholding
- Work State Taxes: Employers generally withhold income tax for the state where the employee performs work.
- Resident State Taxes: Some states require residents to pay tax on all income, even if earned elsewhere.
- Reciprocity Agreements: Certain states allow employees to pay taxes only in their home state—verify if your employee’s states have such agreements.
2. Local Taxes
- Deduct city or county taxes if the employee works in a jurisdiction with local income tax.
3. Unemployment Insurance
- Pay unemployment taxes to the state where the employee works. In some cases, taxes may also be tied to your business’s base state.
4. Pay Stub Requirements
Ensure pay stubs clearly display:
- All applicable state and local tax withholdings
- Unemployment insurance deductions
- Any other mandatory state-specific deductions
5. Tax Filing Guidance
- Employees may need to file tax returns in both their resident state and work state.
- Some states provide tax credits to prevent double taxation—inform your employees as needed.
Tip: Regularly review multi-state payroll rules and use SecurePayStubs to automatically calculate state, local, and unemployment taxes, ensuring accurate pay stubs and compliance for all employees.
Last modified: March 9, 2026
