Employers in states with an income tax have state payroll tax withholding, payment, and reporting obligations. Most jurisdictions imposing payroll taxes require reporting quarterly and annually in most cases, and electronic reporting is generally required for all but small employers. These taxes are imposed on employers and employees on various compensation bases are collected and paid to the taxing jurisdiction by the employers.


So what should you do? First of all, you need a State Tax ID. When you hire employees in a different state,   you need to apply for a state identification number before you can pay employees. A lot of companies hire the employee without having these IDs and can’t run payroll.  Then they have to wait, pay by check, all these delays. An EIN (employment identification number) is the number that you need to pay federal taxes, hire employees, and apply for any business loans. If your small business needs to pay state taxes, this may require a separate number. You can find your state and federal tax ID on this page.


If you have a business in only one state, your job becomes easier. It is a different situation when the business expands beyond the borders of one state. Then you will have to file taxes for several states.

Let’s assume you have a New York office where you employ five New York residents. You also have a second office in Vermont, where you employ four Vermont residents. Your employees never leave their state of residence to work in the other, out-of-state office.

You would have to withhold New York income taxes from the wages of your five New York employees and Vermont income taxes from the wages of your four Vermont employees. You would have separate withholding obligations in each state.

So before understanding whether you owe a state income tax liability to that employee, you need to know the rules of the countries where you do business. In some states, there are cities, counties, and other local governmental units that impose their own income tax.

If you have any doubts as to the proper conclusion, you can consult with us at 323-538-5358 or write to us via