Are You Withholding The Correct State Tax From Your Employees?

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CHARLOTTE – Multi-State Taxation

Which state income tax to withhold. As a starting point, the default rule of state income tax withholding is to withhold income tax for the state in which services are performed (the work state). Almost all states require employers to withhold tax from employee wages earned for work performed in that state, even for non-residents. The analysis needs to go no further if the employee lives and works in one state.



Reciprocity- When two states have a reciprocal agreement for tax purposes, it makes things administratively easier for the employer by allowing it to withhold only for the state of residence. North Carolina does not have reciprocity with South Carolina. Since they do not have a reciprocal agreement, you’ll have to file a resident tax return and a nonresident tax return.

An employee’s state of residence must be determined because a resident is subject to the laws of that state, including its income tax laws. States have the power to tax all income of state residents, even income earned for work performed in a different state. State definitions of residency vary, so state laws and regulations must be consulted when making the determination.

Jen Stevenson Payroll LLC is a proud member of Union County Chamber of Commerce, Waxhaw Business Association, and the American Payroll Association.

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