Employers who operate in more than one state need to understand the complexity of determining the proper state location for reporting unemployment taxes for each employee. In this article, we will cover the rules and factors utilized by all states to report and pay taxes, which we can break down to a four-step process. We will not cover state income tax here. That is a topic in itself and will be covered in a future article.
Before we start, let’s cover the simple scenario. Employee lives in Florida, but each day drives and crosses state lines to work in Georgia for a company that has no business operation outside of that state. In this case, the employee’s wages are reported to Georgia for unemployment tax.
Rule 1; Report to where the individual’s work is localized. This means that if the employee works outside the state temporarily, isolated, or incidental, compared to the services performed in the main state, then ALL wages are reported to the main state. In this example, the employee works in Tennessee and traveled to Idaho for a few days to work at a trade show. All of this employee’s wages are reported to Tennessee.
Rule 2; Report to where the base of operations is. A base of operations is the place where the employee reports to work or returns from work, or where the employee calls their “office” (mail is sent there, employee maintains their records there, or where the employee receives instructions). Note: this can be the employee’s home. In this example, the employee has a physical office in D.C. at the company’s corporate office. He regularly goes to his office to review his mail and meet with his assistant, but most of his day is spent out in the field performing work for clients in Virginia and Maryland. In fact, more than 80% of his time is spent outside of D.C. All of this worker’s wages are reported to D.C.
Rule 3; Report to the place of direction or control. This rule looks at the state in which the employer exercises or can exercise immediate control over the employee’s work. Emphasis on the word ‘immediate’ control and not ‘ultimate’ control. In this example, we will look at four states. The employee’s corporate office is located in Florida, a regional office in New York where the employee’s supervisor is located, and worksites in New Jersey and Connecticut. The employee is on the road 100% of the time performing work at each worksite in NY, NJ, CT, and even travels to FL from time to time. Since the supervisor is based in New York, all wages are reported there.
Rule 4; Report to the employee’s place of residence. If the employee performs some work in the state they reside in and their work is not localized, nor is any base of operations or place of control, this last rule will report the wages to the residence state. Employee lives and works in Louisiana and also works in Alabama, with her work directed from California. Being that no work is performed in the state the work is directed from, all wages are reported to Louisiana.
Unemployment should only be reported to one state based on the rules above. The only time the reported state should change is when the conditions of employment change based on those rules. If we revisit rule 3 above, and find the employee’s supervisor is terminated and the new supervisor works out the corporate office in Florida, the reported state would change to Florida.
Here is a list of all state Unemployment Tax agencies and their contact information: https://oui.doleta.gov/unemploy/agencies.asp
While I make every attempt to ensure the accuracy and reliability of the information provided in this article, the information is provided “as-is” without warranty of any kind. PayMaster, Inc and Romeo Chicco do not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional as federal, state, and local laws change frequently.