How to set up payroll taxes for remote employees

I had my first chance to work in the payroll world when I was finishing up my junior year at college. A friend of mine knew a guy that owned an accounting firm, and he needed some help processing payroll for about 40 different companies. I didn’t know anything about payroll, but I thought it would be a good idea to get some experience seeing what real-life accounting was like, so I took the job. On my first day, I was handed an IRS booklet called Publication 15, which was a crash course in all things payroll tax. To this day, that was the most boring job I’ve ever had—but at the same time, it taught me so much! My first takeaway? Payroll taxes can be really complex and whatever you do, do not screw up payroll tax!

Payroll taxes for remote employees present a complex problem. 

Fast forward about 20 years, and my first takeaway is still correct. Payroll taxes be a complex world, and they have to be right 100% of the time. What I find is that a lot of employers handle this well for the states they are most familiar with, but with more and more workers looking for remote jobs, the list of states that you need to have expertise in is rapidly growing. This article will explore some of the considerations you need to make as you look into having employees in multiple states. 

Payroll taxes are primarily driven by two things:
Where an employee works and where an employee lives.

These two locations will determine the tax liabilities and tax agencies that the employee and employer are responsible for reporting to. For example, Whirks is based in Memphis, Tennessee, and because of our proximity to Mississippi, it is common to hire employees living in that state. When we do, the employee works in Tennessee and lives in Mississippi, which creates a tax burden for the employer in Tennessee and a tax burden for the employee in Mississippi. For businesses that operate near state lines, having employees that live and work in different states isn’t all that uncommon.  With the rise of remote workers, however, this dilemma is becoming all too familiar for employers that have never had to worry about keeping up with tax rules in different states.

How do you make sure you’re taxing your remote employees the correct way? 

Here's the simplest way to think about payroll taxes and your business.

1. If you plan to hire workers that are living and working in other states, you will need to have payroll tax accounts in those states. There are two primary payroll tax accounts that you will need to apply for: a state unemployment account and a state withholding account. Keep in mind that not all states have an income tax, so you will not always need the withholding account.  

2. Once you have your accounts, you will need to file your payroll tax returns in those states every time they are due. But here’s the kicker – not all states follow the same due dates! For example, an Alabama state withholding return is due on the 15^th of the first and second month of a quarter, but the last day of the month in the third month of the quarter—confusing, I know! On top of filing the returns in a timely manner, you need to make sure you are filing the returns using the right method. This is typically either a paper return that is mailed in or an electronically filed return, and again, each state is different in how this must be managed.  

3. You will need to pay the payroll taxes for remote employees to the correct agency when they are due. This one sounds simple, but when you find yourself working with a lot of different states, it can be hard to keep up with. Similar to your returns, each state has different rules on when you must make the actual tax payments. Some of the more common payment frequencies are monthly or quarterly, but you will also find some tax agencies will require anything from a weekly payment to an annual payment, depending on the specifics of your organization. 

Gather forms from your remote worker.

Finally, while your employee's home address and work location determine where they are taxed, each state has specific forms to help you understand how much tax should be withheld, and you must gather these forms directly from the employee. Sounds tedious, right? To simplify this process, I always recommend using some type of electronic onboarding system. This allows you to gather the correct tax forms 100% of the time and avoid the risk of creating unhappy employees and frustrated employers, not to mention the possibility of getting in trouble with the state! 

Hire a payroll specialist to manage payroll taxes for remote employees

If all of this “multiple-state payroll tax mumbo-jumbo” sounds like something you don’t want to deal with, let Whirks simply your life while making sure payroll is handled correctly every time. Check out our other blogs below, or click here to set up a time to talk with one of our guides so you can offload that payroll tax burden for good!