Best Practices for Multistate Payroll Tax Compliance

Best Practices for Multistate Payroll Tax Compliance

Work-from-home has allowed more employers to hire employees across state lines. Although this development provides employers with limitless options, it also leads to the ordeal of having to withhold income tax for multiple states. The complexity of multistate payroll tax compliance arises from the need to navigate a different set of rules for each employee who lives in one state and works in another, or that executes tasks for you in more than one state. Complying with IRS payroll tax has now become one of the biggest problems for payroll professionals, making it vital for employers to stay on top of these requirements. Failing to do so can result in significant sanctions from the IRS.

What is Multistate Payroll Tax Compliance?

To tackle the issue of determining employer withholding obligations across state lines, an employer must understand the concepts of multistate payroll tax. These concepts include reciprocity agreements, nexus, and nonresident taxation policies. An employer must overcome these regulatory hurdles to maintain compliance and meet demands arising from the growing remote workforce.

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Issues Associated with IRS Payroll Tax Compliance

Some of the issues faced by employers in complying with IRS payroll tax requirements include:

  • Closing the business account in a particular state after a remote employee quits.
  • Registering their business in a state where a remote employee resides.
  • Adhering to different regulations, payment arrangements, and tax forms that differ from state to state.
  • Figuring out which state has the taxing authority when a remote employee lives in a different state than the employer. Sometimes, IRS payroll taxes are due in both states.

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Best Practices for IRS Payroll Tax Compliance

The following practices will help you to comply with payroll tax requirements:

  • Ensure your information is current on your employees, know where they live.
  • Create a payment timetable for employee taxes.
  • Make a comprehensive list of taxing agencies in states where your remote employees work.
  • Check in with taxing agencies in different states where your employees work, keep checking in to ensure there are no changes to regulations.
  • Balance your accounts daily and keep tax accounts separate from operating funds.
  • Hire a specialist to handle your multistate payroll tax management if you want to avoid IRS tax problems.


Now that COVID-19 has changed the workplace, the number of remote employees has increased significantly, and this trend might not go away. This increase demands that employers pay close attention to detail when it comes to income tax withholding and payroll tax laws of different states. Consequently, it is more important than ever to establish a system that can keep up with multistate payroll tax regulations to avoid costly penalties. Although complying with IRS payroll tax is challenging, hiring across state lines creates opportunities for businesses to grow. If you are still wondering how to pay payroll taxes to the IRS or if you face any other IRS payroll tax problems, a team of seasoned Dallas payroll tax attorneys at the Law Offices of Nick Nemeth can provide you with the best available solution. Call (972) 426-2553 for a free consultation today about IRS payroll tax in Dallas! You can also fill our Contact Form.

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