Do we have to register for payroll in an employee's home state?
Usually, yes. Withholding follows the place where the work is actually performed, so once an employee is doing their job from a house in another state, that state is generally where the wages are sourced and where the employer has to open a withholding account. The registration is the employer's duty rather than the employee's, and the liability for tax that was not withheld sits with the company. Two further registrations often follow from the same hire, because employee presence is treated as nexus in most states: corporate income tax and, in many cases, sales tax.
Which state gets the withholding if our staff work from home?
Start with where the work is performed, then test two overlays. Reciprocity agreements between neighbouring states can let an employee be withheld in the state of residence rather than the state of work. Convenience-of-the-employer rules push the other way: a state can treat days worked at the employee's own house as days worked at the employer's location, on the basis that the arrangement suits the employee rather than the business. The two can point in opposite directions for the same person, which is why the answer is settled pair of states by pair of states, not company-wide.
Does one employee in another state create corporate income tax nexus?
In most states, yes. Employee presence is itself nexus, and it arrives with the hire rather than with any later level of sales. The consequence is not simply one more return. Once the company is taxable there, its income has to be apportioned, so that state's apportionment formula now applies to revenue earned everywhere. Payroll registration and corporate registration are separate filings with separate deadlines, so treating the payroll account as the whole exposure is how a company ends up with unfiled corporate returns sitting behind it.
What is the convenience-of-the-employer rule?
It is a sourcing rule some states apply to days an employee spends working at their own home. If the home working arrangement exists for the employee's convenience rather than because the employer needs the work done in that location, those days are sourced back to the employer's location and taxed there. The practical effect is double sourcing: the state where the house sits wants tax because the person lives there, and the employer's state wants tax because it deems the day worked at the office. Relief then depends on a resident credit, which the employee has to claim correctly.
We never withheld in an employee's state — how do we fix it?
Work backwards from the day work started being performed there. The steps are usually registration, catch-up filings for the periods already closed, and a correction to the wage reporting the employee relies on for their own return. The employer is liable for tax it should have withheld, so the exposure is the company's before it is the employee's, and interest runs from the original due dates. Where the employee was instead withheld in the wrong state, the position is a reallocation rather than a pure shortfall, and the resident credit on their own return has to be reworked alongside it.
Can a home-based employee trigger sales tax registration for us?
It can. In most states an employee working inside the borders is enough presence to establish nexus, and that nexus is not confined to payroll. The same facts can make the company responsible for collecting and remitting sales tax on what it sells into that state, whether or not anyone from the business has ever travelled there. The trigger is the person, not the volume of sales, so a single hire can produce three separate registrations. Settling all three at the point of hire costs far less than discovering the sales tax one during a later examination.
Should I use a branch or a subsidiary abroad?
A branch is the same legal entity operating in another country, so its profits and losses sit with the parent and it is taxed there as a permanent establishment. A subsidiary is a separate company, taxed in its own right, with dividends and withholding on the way home. Losses, repatriation cost and liability usually decide it, and the answer differs by country pair. See branch vs subsidiary.
I work remotely from another country for a company back home — who taxes me?
Usually the country you are physically in, because employment income is generally sourced where the work is done, with your residence country taxing it as well if you are resident there and giving credit. Three things follow: your employer may acquire withholding and social security obligations where you sit, a treaty tie-breaker may be needed if both countries call you resident, and a short trip that becomes a long stay can cross a residence threshold nobody was watching. See remote workers and digital nomads.
