Navigating Multistate Unemployment Tax Reporting and Remittance

By hrlineup | 17.12.2019

Any corporation that is looking for customers today extends beyond just the local neighborhood or area. Globalization and the internet mean that customers could actually cut across the entire country and beyond. To meet the needs of this massive group of people, it is essential to have employees that are flexible enough to work in multiple states. While just mentioning this option seems like a viable plan, there is one complication that would need to be addressed, and that is unemployment tax.

Multistate Unemployment Tax Remittance Process

Employers are responsible for multi-state unemployment tax compliance, which involves both federal and state taxes. The state unemployment tax is paid in the state where the employee works. To better guide employers, there are some rules in place that can help determine the right state for these taxes to be filed. These include: –

  • The state where the employee works for most of the time. This rule is known as Localization. It means that of the states the employee works from, there is one where most of their services are performed. A question may arise where an employee works equally in two states. If this is the case, the state the taxes are paid to are where the base of operations take place.
  • The state from which the employee receives his directions from the employer. This is the option considered when the employee is working equally within different states, and it is challenging to identify a base of operations. The employer can then choose to remit unemployment tax where they exercise their ultimate authority
  • The resident state of the employee, where some of his services are performed. All other criteria shared may still not clearly provide for where the taxes are to be paid. These would be localization, direction, or base of operations. In this instance, the employee’s main residence state may be where the unemployment tax is filed.

It is also worth nothing that the state these taxes are to be filed may be at the discretion of the employer. This means that within reason, the employer can decide where to pay unemployment taxes.

Getting Unemployment Tax Recording Right

When dealing with different states, it is important that you keep excellent state unemployment tax records. This will make it possible for reporting as well as processing of the tax payments. It is worth noting that the rate of these taxes may change from one year to the next.

As an HR director or employer navigating multi-state employment laws, it is essential that compliance is top of mind. Non-compliance attracts penalties. The employees are responsible for making sure they are aware of all tax requirements, especially unemployment and withholding. In the event that a filing is made in the wrong state, a correction should be made immediately to avoid penalties or charges on interest. To make sure that no mistakes are made, employers need to take time and consult with qualified tax advisors.