Navigating State Withholding Requirements for Nonresident Employees

The assortment of state income tax withholding rules for nonresident employees can create headaches for employers. Employees working even a short period of time in another state can expose their employers to unexpected withholding tax liability.

Remote work arrangements during the COVID-19 pandemic revealed the problems with the hodgepodge of state withholding rules. Fortunately, many states provided some form of withholding relief.

The U.S. Congress repeatedly introduces and fails to pass federal mobile workforce legislation to simplify state withholding rules. The legislation typically exempts employers from income tax withholding for employees who briefly work in another state (e.g., 30 days or less).

The Multistate Tax Commission (MTC) also approved a model mobile workforce statute in 2011 to encourage state uniformity. The MTC proposal sets a 20-work day threshold before a state can require withholding for nonresident employees.

North Dakota is the only state that substantially follows the MTC model statute. There are other states with less comprehensive withholding rules for nonresident employees based on:

• work-day thresholds that are shorter or longer than the MTC statute;
• wage or income thresholds; or
• a combination of both.

But a little over half of the states with a personal income tax do not have any withholding thresholds for nonresident employees.

How Many States Have Work-Day Withholding Thresholds?

8 states have work-day withholding thresholds for nonresident employees.

Utah provides withholding relief if an employer can certify that it is not doing business in the state for more than 60 days during the calendar year.

How Many States Have Wage or Income Thresholds?

6 states have wage or income withholding thresholds for nonresident employees.

Georgia and Maine have a combination of an income and work-day threshold. Oregon provides withholding relief if an employer can show that wages paid are $300 or less during the calendar year.

How Many States Have No Withholding Tax Thresholds?

22 states and the District of Columbia do not have any withholding thresholds based on workdays, wages paid, income received, or other criteria.