Small businesses take many forms—some operate out of the owner’s living room, some out of an office or retail store, some are on the road. Working outside the state in which you live can add a layer of complexity to tax filings and payroll calculations.
State reciprocity agreements allow employees that work outside of the state in which they live to only pay taxes to their state of residency. This can be a benefit to high earners, for example, if their state of residence has a lower maximum rate than the state where they work.
But reciprocity isn’t as simple as one state being next to another. You might be surprised to learn that while Pennsylvania and New Jersey have a reciprocity agreement, New York and New Jersey do not. That means if you live in New Jersey and work in New York, you will pay New York income taxes as a non-resident and New Jersey income taxes as a resident. In some cases where a specific reciprocal agreement does not exist, the resident state may have a credit in place for taxes paid to other jurisdictions.
Below you will find a chart that outlines states where reciprocity agreements exist, as well as what non-resident certificate you should have on file for yourself and your employees in these instances. Filing a non-resident certificate will ensure that the residency state tax is withheld on your income instead of the work state income tax.
Note: Reciprocity and non-resident certificate eligibility is determined by your or your employee’s home address and pertains to income tax withholding. However, unemployment liability is usually based upon an employee’s work address. Before you register for unemployment tax in a new state, you will want to consult your accountant, financial advisor, or the corresponding state agency to determine the correct unemployment liability.
If you’re concerned about manually tracking and processing the correct state taxes for each of your employees based on residence and reciprocity eligibility, you might want to consider a payroll service that will allow you to record each individual employee’s details and withhold the correct tax rates based on the information provided. Request a quote from SurePayroll today to learn more about why we are the right fit for your small business payroll needs.
This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.