Tax Requirements

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Source: Payroll Administration Guide > State and Local Income Tax Withholding > Multistate Withholding Requirements: State Comparison Chart

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Multistate Withholding Requirements: State Comparison Chart

Employees who reside in one state but work in another can create withholding questions for payroll departments. The following chart illustrates the different state taxation and withholding rules applicable to such multistate taxation situations. In general, when an employee's state of residence differs from the state where the individual works, the employer must withhold taxes for the state where the services are performed. However, while an employer generally should first consider the withholding requirements for the state in which the work is performed, it also should check the rules for the employee's state of residence, which may impose additional withholding responsibilities on the employer.

The chart below covers the general multistate withholding rules issued by the states. The main categories included in the chart are: υ Withholding for Nonresidents — Individuals who reside in one state and work in another normally are subject to the withholding rules of the state in which they perform their duties or render services. Employees working in more than one state may be subject to allocation rules that divide up the withholding obligations or requirements among the states in which the work is performed.

υ Residents Working Outside the State — Most states have a general rule requiring that income taxes be withheld from residents' wages earned outside the state. However, most states also have some type of arrangement — e.g., reciprocal agreements with neighboring states or unilateral tax credits for taxes paid in another jurisdiction — designed to avoid double withholding and double taxation.

υ Reciprocity — A number of states have entered into reciprocal agreements with other states to ensure that

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