The rise of remote work didn’t just change where employees work — it changed where businesses owe taxes. A single remote employee working from a state other than your headquarters can create payroll withholding obligations, income tax nexus, unemployment insurance registration, and in some cases, sales tax nexus in that state. Most business owners discover this when a state sends an assessment — not before.
FJ & Associates, PLLC helps Utah businesses with remote employees understand their multi-state tax obligations, get registered correctly, and maintain ongoing compliance across every state where employees work.
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What Remote Employees Create for Your Business
State Income Tax Nexus
An employee working in a state creates physical nexus in that state for corporate income tax purposes — generally requiring your business to file a state income tax return and pay tax on income apportioned to that state. Every state with a corporate income tax (44 states plus DC) has its own nexus rules, but an employee is one of the most consistent nexus triggers.
Payroll Withholding Obligations
You must withhold the appropriate state income tax for the state where the employee performs the work — not where your company is headquartered. An employee in Colorado requires Colorado withholding. An employee in Tennessee (which has no income tax on wages) requires no state withholding. The employee’s physical work location determines the withholding state.
Unemployment Insurance (UI) Registration
Every state requires employers to register for unemployment insurance in the state where employees work and pay UI premiums on wages earned in that state. Failure to register creates retroactive liability for unpaid premiums, interest, and penalties.
Workers’ Compensation
Some states require workers’ compensation coverage under that state’s laws for employees working there — even temporarily. Requirements vary; some states allow coverage under the employer’s home state policy for short periods.
The “Convenience of the Employer” Rule
Several states — including New York, Nebraska, Pennsylvania, Delaware, and Arkansas — apply the “convenience of the employer” rule to remote employees. Under this rule, if a remote employee works from home for the employee’s own convenience (rather than necessity), the employer must withhold that state’s income tax for the employee’s wages — even if the employee never physically works in that state.
For Utah-based businesses with remote employees who were formerly New York-based office workers, this rule can create unexpected New York withholding obligations. We assess exposure on a state-by-state, employee-by-employee basis.
Work Location vs. Residence State
When an employee lives in one state but works in another, both states may want to tax that employee’s wages. Most states have reciprocity agreements with neighboring states that simplify this — employees only file in their home state, and the employer withholds accordingly.
Utah has reciprocity agreements with the following states: None currently. Utah-based employees working remotely from, say, Nevada (no income tax) or Idaho will have their taxes determined by each state’s rules independently. We map out the withholding requirements for each remote employee’s location.
Documenting Remote Work Arrangements
If a remote employee moves states or works temporarily from a different state (a “workcation”), your withholding obligations shift. Key documentation practices:
- Maintain written remote work agreements specifying the employee’s primary work location
- Track any temporary work-from-different-state situations (most states have thresholds — e.g., fewer than 30 days doesn’t trigger nexus in that state)
- Update payroll records immediately when an employee’s work location changes permanently
- Collect updated state W-4 equivalents when employees change work states
Remote Employee Tax FAQs
We’re hiring our first remote employee in Texas. What do we need to do?
Texas has no state income tax, so no state withholding registration is required. However, you need to register with the Texas Workforce Commission for unemployment insurance. You may also have Texas corporate franchise tax nexus depending on your business activities and revenue in Texas.
An employee moved from Utah to California without telling us. Are we exposed?
Yes. You now have California payroll withholding, UI, and potentially corporate income tax obligations retroactive to the move date. California’s tax enforcement is aggressive and its lookback periods are long. Contact us to assess your exposure and develop a remediation plan.
Do we owe income tax in every state where we have remote employees?
Yes — in states that impose a corporate income tax. The income apportioned to each state is typically a small percentage of your total income (based on the ratio of wages or sales in that state), but you must file returns in each state where you have nexus. We manage the multi-state return preparation.
What if our remote employees work from multiple states during the year?
Each state where an employee performs work has a claim on withholding for wages earned while in that state. For employees who travel frequently, we track work days by state and calculate withholding allocations accordingly.
Get Remote Employee Tax Compliance Right
📞 (801) 927-1337
✉ admin@cpaone.net
📍 612 N Kays Dr Suite 120, Kaysville, UT 84037
Schedule a Remote Employee Tax Consultation →
See also: Multi-State Tax Compliance | Utah Payroll Services | Sales Tax Nexus
Missy Dennis, CPA | Partner | FJ & Associates, PLLC | Kaysville, Utah
Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant. She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence. With more than twenty years of public accounting experience, Missy Dennis specializes in: Tax preparation and tax advisory; Bookkeeping strategy alignment; Estate and trust taxation; Audit and consulting services; Low-income housing tax credits; Non-profit accounting; Small- and mid-sized business advisory.
