Which State Do We Pay
I have a business in one state and 1 employee who lives and does their job in another state (works remotely for us). Do we pay the state withholding and state unemployment to the state where we are located for that employee or do we pay the state where the employee lives and performs their work?
Quick Answer:
For state income tax withholding, you generally pay to the state where the employee performs their work. Since your employee lives and works entirely in the second state, you would typically withhold and remit income tax to that second state.
Regarding state unemployment insurance (SUI), also known as State Unemployment Tax Act (SUTA), the general rule likewise points to the state where the services are performed. As your employee works remotely and performs all their duties in their resident state, you would typically register and pay SUI contributions to that state.
This means you will likely need to register your business in the employee's state for both withholding and unemployment tax purposes.
Note: This answer is provided for convenience only. It is important that you speak to a CPA about your individual tax situation.
