State payroll & nexus for remote staff — what does the employer owe?

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Answer

Withholding follows where the work is performed, with reciprocity and convenience-of-the-employer rules complicating the result. The obligation sits on the payer, and the payer is liable for what it failed to withhold.

What the employer owes

Withholding follows where the work is performed, with reciprocity and convenience-of-the-employer rules complicating the result. The corporate consequence — income tax nexus and apportionment — arrives with the same hire.

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Where it does not apply

One remote employee can register a company for payroll, income tax and sales tax in a state it has never visited, because employee presence is nexus in most states.

State payroll & nexus for remote staff — what does the employer owe?
ItemAmount
Annual salaryC$215,000
Working days in the year236
Days worked in the other country133
Days worked at home103
Income sourced to the other countryC$121,165
Income sourced at homeC$93,835

C$121,165 is sourced abroad on this split, which is the figure the host country taxes and the figure the home credit is computed on. Reproduce this from a travel record, not from memory — it is the first thing an auditor asks for.

Example figures throughout, selected to make the rule visible, with rates and thresholds assumed for the demonstration. Your actual filing uses figures confirmed with the issuing authority for your tax year.

What to do next

The full treatment — who it binds, the deadline, the penalty and the fixed fee — is on State payroll & nexus for remote staff. Ask before the move rather than after it, because most of the useful options expire on the date.

Reviewed against current guidance for the 2025 and 2026 filing seasons by Udit Gupta, Cross-Border Tax Expert, Legal Quotient Consultants. General information, not advice for your circumstances — call our 24-hour helpline to discuss your own position.

Where international tax accountant comes into this file

If you came here for international tax accountant, this is where it is dealt with. The subject is state payroll & nexus for remote staff, and the page covers who it reaches, what then has to be filed, and what we charge to do the work.

Files that look like this one

Case study 1

Registering payroll in a state the company had never entered

An engineering business hired one designer who worked from a house several states away from its only office. Payroll had carried on withholding to the office state. We established where the work was actually performed, opened the withholding account in the employee's state, corrected the wage reporting for the periods already filed, and set the ongoing withholding from the following cycle. The same facts were then tested for corporate income tax and sales tax, because employee presence is nexus in most states. The engagement produced a registration set, corrected wage statements, and a written note of the position taken.

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Case study 2

Untangling withholding after an employee moved without telling payroll

A company learned at year-end reporting that a member of staff had moved across a state line months earlier. Nothing in the payroll record marked the change. We fixed the move date from lease and travel documents, split the year's wages between the two states on that date, and reported each portion where the work had been performed. The employee's own filings were then rebuilt so the resident credit matched the corrected sourcing. The work produced a dated wage split, amended employer filings for the affected quarters, and a change to the onboarding form so a move reaches payroll.

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Case study 3

A reciprocity agreement that removed a second withholding account

A business with staff living on one side of a state border and working on the other was running two withholding accounts and fielding complaints about deductions in both. We examined the reciprocity agreement between the two states and the certificate each employee had to file to rely on it. Where the conditions were met, withholding was consolidated to the state of residence and the employee certificates were collected and retained. The engagement produced a single withholding position per employee, the supporting certificates on file, and closure of the account that was no longer required.

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Case study 4

Apportioning company income after a single hire created nexus

A services company had opened a payroll account for one employee in a new state and assumed the matter was closed. It was not: the same presence made the company taxable on income there. We prepared the corporate registration, established the first year in which the employee had worked in the state, and applied that state's apportionment formula to revenue earned across the whole business. Prior years were brought up to date rather than left open. The engagement produced corporate returns for the open years, an apportionment working paper, and a schedule of which states each employee touches.

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Case study 5

Two states taxing the same workdays at an employee's house

An employee living in one state worked at home for an employer located in another, and both states claimed the days. The employer's state applied a convenience-of-the-employer sourcing rule; the residence state taxed the same income because the person lived there. We documented why the home working arrangement existed, whether the role required presence in that location, and what the employer had directed in writing. The position was then set out with the resident credit computed against it. The work produced a written sourcing position for the employer and a matching credit claim on the employee's return.

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Case study 6

Bringing three unfiled state years up to date after a hire

A company discovered during diligence that a hire made some years earlier had never been reflected in any registration in that state. Payroll, corporate income tax and sales tax were all unaddressed. We fixed the start date of the work, quantified what should have been withheld and remitted in each period, and filed the back years in sequence so the accounts closed in the right order. The engagement produced completed registrations, filed returns for the open periods, a schedule of the interest exposure, and a hiring checklist that puts the three registration questions before an offer goes out.

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Case study 7

One Employee in a State Nobody Had Registered In

A single person working from home can create payroll registration, withholding and sometimes an income tax filing for the company in that state. The review measures activity against each state's own threshold.

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Case study 8

Never Filed a US Return — and Only Just Found Out

Born in the United States, left as an infant, and told by a bank that the returns were owed all along. The work is sequencing: establish which years are actually open, choose the catch-up route on the facts rather than filing quietly, and claim the exclusions and credits that were never taken.

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Remote Workers & Digital Nomads

Working from anywhere doesn't mean taxed nowhere: residency defaults, employer payroll exposure and treaty relief decide where income actually lands.

Working from another country does not by itself end tax residence in the one you left, and it can start one where you are sitting. Day counts, ties, the employer's own exposure and the treaty tie-breaker all point at the same question, and the year you move is the year it has to be answered on paper.

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More on State payroll & nexus for remote staff

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.

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