An employer that lets a person work from another state takes on three questions: which state taxes the wages, which state requires the employer to withhold, and whether the arrangement creates a registration or tax footprint for the business. Federal law answers almost none of them. Congress has set a day-count standard for only narrow groups, such as air carrier employees, and a broader mobile workforce bill has been introduced repeatedly. Each state sets its own rules, and the rules differ on withholding thresholds, on convenience of the employer sourcing, and on reciprocal agreements. This article covers the framework a CPA firm can use for client payroll, using the federal text and two state agency pages as examples. It stays general on state specifics, and the file should cite the revenue department page for each state involved.
Does federal law set a day threshold for nonresident withholding?
The federal statute that does speak to multistate wages is narrow. Under 49 U.S.C. 40116(f), the pay of an employee of an air carrier with regularly assigned duties on aircraft in at least 2 states is subject to the income tax laws of only two places: the state of the employee's residence, and the state in which the employee earns more than 50 percent of the pay. A state counts as that place when the employee's scheduled flight time there is more than half of total scheduled flight time for the calendar year.
For everyone else, the rule comes from state law. The result is that an accountant, engineer or sales manager working from a spare bedroom is governed by whatever the home state and the employer's state say.
What would the Mobile Workforce bill change?
S. 1443, the Mobile Workforce State Income Tax Simplification Act of 2025, was introduced April 10, 2025 and referred to the Senate Finance Committee. As introduced, it provides that wages of an employee who works in more than one state are taxable only by the home state and by a work state where the employee is present and performing duties for more than 30 days in the calendar year. Section 2(b) of the bill says wages are not subject to state withholding and reporting unless the employee is taxable in that state under the 30 day test.
The details that matter for a payroll file:
- Day definition. A person works in a state on a day if more of the day's employment duties are performed there than in any other state. Time in transit is disregarded. If a day involves the home state and exactly one nonresident state, the nonresident state is treated as the location.
- Employer reliance. For penalty purposes, an employer may rely on the employee's annual estimate of time in each state, unless it knows of fraud or colludes with the employee. If the employer runs a time and attendance system that logs work location, that data is used instead of the employee's estimate.
- Exceptions. Professional athletes, certain professional entertainers, qualified production employees and certain public figures are excluded.
- Effective date. January 1 of the second calendar year after enactment, with no effect on tax obligations that accrued before that date.
An example under the bill's text: an employee lives in State A and works for an employer based in State B. The employee is at client sites in State C on 28 days and State D on 31 days in the year. State C has no withholding claim. State D does, because 31 is more than 30. Until Congress enacts a bill like this one, it sets no rule for any employer. It does show what to log: location by day.
What is a convenience of the employer rule?
Some states tax a nonresident's pay for work done at home outside the state when the employer's office is in the taxing state, unless the remote work is required by the employer. New Jersey enacted its version in P.L.2023, c.125 on July 21, 2023, retroactive to January 1, 2023. The Division of Taxation says it affects nonresidents who work for a New Jersey employer and live in states with a similar test, such as Delaware, Nebraska and New York, and states the list may change. It excludes Pennsylvania residents because of a reciprocal agreement, and Connecticut residents because Connecticut's rule is reciprocal. Under the rule, pay for out-of-state work done for the employee's own convenience is sourced to New Jersey.
New York's withholding page says employers must withhold for nonresidents paid for services performed within New York, and that New York residents are subject to withholding even on wages earned outside the state. It also says an out-of-state employer with no New York office or business is generally not required to withhold New York income tax for employees who live in New York. If it withholds for the convenience of the employee, it becomes subject to the New York withholding requirements.
The same employee can therefore be taxed by two states, with a resident credit sorting it out at filing. For the payroll file, record which rule drove each withholding decision.
When does a remote employee create a nexus footprint?
Three separate footprints can arise from one employee, and each has its own test:
- Income tax withholding. Whether the employer must withhold for the work state, based on that state's threshold or convenience rule.
- Registration and unemployment or other payroll accounts. Whether the employer needs to register as an employer in the state. The standard varies by state.
- Sales and use tax and income or franchise tax nexus. Whether a person working in a state creates a presence for sales tax or income tax purposes depends on that state's standard. The framework in sales tax nexus after Wayfair and the state economic nexus standard apply alongside the payroll analysis.
A single remote hire in a new state can trigger all three. Treat the hire as an event that starts a nexus review, not as a payroll setup task.
What should the remote worker register hold?
Keep one row per employee with:
- Home address and state, with the effective date of any move.
- The employer location the employee reports to, and whether the remote arrangement is required by the employer or chosen by the employee.
- Days worked by state, with the source (time and attendance data, calendars or the employee's annual estimate).
- The states where withholding is set up, the rule relied on, and any reciprocal agreement.
- Registration status for each state, and the date of the first payroll there.
- The nexus review conclusion for sales and income taxes.
An auditor can tie this register to the payroll register and to the state withholding returns using the steps in payroll audit procedures. A control that flags changes of address in the HR system fits into the hire to retire control set. The gap that most often shows up in testing is an employee who moved states and left withholding unchanged for the rest of the year.
CORAA prepares ready-to-review audit files for US CPA firms; see /us.
Sources
- Cornell Law School Legal Information Institute, 49 U.S.C. 40116 (air carrier employee income tax): https://www.law.cornell.edu/uscode/text/49/40116
- GovInfo, S. 1443 (119th Congress), Mobile Workforce State Income Tax Simplification Act of 2025, as introduced: https://www.govinfo.gov/content/pkg/BILLS-119s1443is/html/BILLS-119s1443is.htm
- New Jersey Division of Taxation, Convenience of the Employer Sourcing Rule: https://www.nj.gov/treasury/taxation/conveniencerule.shtml
- New York State Department of Taxation and Finance, Withholding tax requirements: https://www.tax.ny.gov/bus/wt/whtax_require.htm
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