I have a question about a business with out of state employees. The business has no office, assets or other contacts with those other states, either temporarily or permanently.
My understanding is that in this kind of case, an employer is not required to do withholding either for state income tax or or other state charges like workers' compensation or unemployment.
Am I right about that? I have been told that withholding for the other states is required.
Thanks for any insight you can give.
The question is a legal one (and I am not an attorney) and the answer is dependent on state law. I know that some states will maintain that by having an employee within that state, the employer has established nexus for all relevant purposes.
Ira Smilovitz, EA Leonia, NJ
Thanks Ira. I am an attorney, and I'm asking because I'm curious about people's experience with this. There is a constitutional prohibition against one state imposing laws on citizens of another state if they don't purposly do something to bring themselves within the jurisdiction of the other state.
In this case the workers are working in the employer's state, but have home addresses in another state. Their payrole company is telling them they have to withhold for unemployment and workers' comp in the state of the home addresses. That doesn't strike me as particularly legal.
In this matter, I believe you are correct. In my personal experience with NJ/NY and residents of one state working in the other, the unemployment and disability "taxes" were always based on the employer's location, not the employee's residence.
Ira Smilovitz, EA Leonia, NJ
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