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Determine State Income Tax Nexus for Telecommuters Checklist

Author: XpertHR Editorial Team

When to Use

When an employer establishes nexus (i.e., tax presence) with a state, the employer is subject to the state's income tax laws. Nexus is primarily established with the states in which an employer is physically located and conducts business, but it can be triggered in states from which employees telecommute (e.g., work from home) for the employer. When nexus with a state is triggered, an employer is required to register there as a withholding agent and withhold that state's income taxes from the pay of the employees who earn wages in that state for work performed there for the employer.

An employer that has employees telecommuting on an indefinite or permanent basis can use this checklist to determine whether income tax nexus and withholding has been triggered with the employees' home states. This checklist may also be used to determine the states to which the employer must pay unemployment contributions on behalf of such employees.

Note that during the coronavirus (COVID-19) pandemic, many states adopted a temporary nonenforcement policy for employees working from their homes in states other than those in which they normally worked for their employer before the pandemic. When using this checklist, take into account whether the state(s) involved still have a temporary nonenforcement policy in place and, if so, when the policy expires.

Employers should complete the following steps in sequential order.

Customizable Checklist