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Set up employees and payroll taxes in a new state

SOLVED•by QuickBooks•794•Updated 7 days ago

The workplace is changing.  More employees work from home, or work remotely in other states. 

Where your employees live and work determines the state payroll taxes you and your employees are subject to.  Your state taxes may include State Withholding, State Unemployment Insurance, local taxes, State Disability Insurance, or Paid Family Leave. 

If you have an employee in a new state, here are the steps to get the new state added to your payroll product.

Step 1: Find out which state taxes apply and get the info

Figuring out the correct state and local taxes can get tricky.  Every situation and state is different. 

It’s best to contact the state withholding and unemployment insurance agencies, and any applicable local tax agencies where your employees live and work.  The agencies can tell you which taxes apply to your situation. And they’ll help you register for the account numbers you’ll need to pay the taxes and file the forms.  

Depending on the state taxes that apply, you’ll need to have the following info to set up the new state in your payroll product:

  • Account number(s)
  • How often you’re required to pay the tax (deposit frequency)
  • Tax rates

Roaming employees work in more than one state for the same employer. This could be an employee who works in multiple states within the same pay period. Your employee may be subject to multiple state unemployment and local tax withholdings depending on which state(s) they work in, and if they're a resident or non-resident of those states.

Our payroll products don't support multiple state unemployment and local withholding on a single paycheck or on tax filings. We don't recommend using any workarounds as this can cause issues with your state tax forms.

If you use QuickBooks Desktop Payroll, you can use class tracking to track your employees in 2 locations. You may need to make manual adjustments to paychecks and tax forms.

In general, state unemployment will only be paid to one state per employee. That state should be set as the Work Location (in QuickBooks Online Payroll) and the State Lived (QuickBooks Desktop Payroll). To find out which state to report unemployment to, the U.S. Department of Labor (DOL) and all states have agreed to adopt these 4 tests:

  1. Place where work is localized.
  2. Place where base of operations is located.
  3. Place from which the work is directed or controlled.
  4. Residence of employee.

Apply these tests in succession to all services an employee performs under a single contract of hire. If application of a test results in allocation of all services to one state, no further test may be used.

Step 2: Set up or make changes to your employees 

Once you determine the state or local taxes to pay and file, you can add your new employee. Or make changes to an existing employee that moved to a new state.

Select your product below.

Note: Not sure which payroll service you have? Here's how to find your payroll service.
  1. Go to Payroll, then Employees.
  2. If your employee is new, select Add an employee.  If an existing employee moved to a new state, select your employee from the list. 
  3. From Employment details, select Start or Edit. Select or add the work location where you’re required to pay State Unemployment Insurance.  If you have remote employees, the work location may be different than where your employee physically works. Then select Save.
  4. From Tax withholding, select Edit. Go to the State withholding section. If you see two states:
    • If you don’t need to collect state withholding in one state: in the Filing Status ▼ dropdown, select Do not withhold (exempt). 
    • If there’s a reciprocity agreement between the two states, select if your employee gave you a Certificate of Nonresidence form. The form determines which State Withholding is collected. 
  5. If you see a Local Taxes or Other taxes section, select the applicable taxes and enter the rates. 
  6. If you or your employee are exempt from any taxes (not common), from Tax Exemptions, select the applicable tax(es). 
  7. When finished, select Save.
  1. Select Employees, then select Employee Center.  
  2. If you’re adding a new employee, select New Employee. If an existing employee moved to a new state, double-click your employee from the list.
  3. Select the Payroll Info tab, then select Taxes. 
  4. Select the state tab. 
  5. From the State Worked dropdown, select the state where you’re required to pay State Unemployment Insurance. If your employee works remotely, the state worked may be different than where your employee physically works.
  6. From the State Subject to Withholding, select the state you’re required to collect and pay State Income (or Withholding) tax for your employee.  If you’re required to pay or file State Withholding tax in more than one state, you may want to use QuickBooks Online Payroll. 
  7. You may see a prompt to set up the new taxes.  Follow the instructions below in Set up your new state taxes. 
  8. You may also see a prompt asking if your employee is subject to a list of additional taxes. 
    • If your employee is subject to one or more taxes, select Yes. From the Other tab, you’ll see the additional taxes added.  Remove any that don’t apply by selecting the item, then Delete.
    • If your employee isn’t subject to any of the taxes, select No. 

If your employee is subject to local taxes, you can set up the local tax items to calculate.  You’ll have to pay and file your local taxes manually. 

  1. From the Other tab, click anywhere inside the blank area below the Item Name box. Select the dropdown, then select Add New.
  2. Follow the instructions in the wizard to select the type of local tax, enter your account number, and rates.

Step 3: Set up your new state taxes

It’s important to complete the state tax setup if you want us to make your tax payments and file your forms electronically.

You can set up state taxes without your account numbers. You’ll need to pay the taxes and file the forms manually until you add the account numbers. 

Complete the steps below for each tax you are required to pay and/or file. 

Notes:

  • You may be required to file some state forms even if you don’t need to collect the tax from your employees.
  • You can’t delete or remove a state or state tax
  1. Select Settings Settings gear icon., then Payroll Settings.
  2. In the [State] tax section, select Edit ✎. 
  3. Enter the info applicable to the taxes you are required to pay.
    • If you need to apply for a state account number, select Get your account number. Find out more.
    • If you aren't required to pay a tax, leave the account number field blank and enter or select 0.00 for any rates.

Set up local taxes (QuickBooks Online Premium or Elite only)

  1. Select Settings Settings gear icon., then Payroll Settings.
  2. Select Local Tax Jurisdictions. 
  3. Enter your account number and pay frequency.  If you’re not required to pay, leave the account number field blank.

You’ll see one or more prompts to set up new state taxes when you’re adding or editing your employee’s State Subject to Withholding and State Worked on the Taxes tab. 

  1. On the state tax prompt, select Setup.
  2. Leave the state tax name as is. Select Next.
  3. Enter the name of the state agency and your account number if you use QuickBooks Desktop Payroll Assisted, or you e-file/e-pay. 
  4. If you want to use a different liability or expense account than the one(s) shown, select the dropdown. Then select the account you created.  Or select Add New to set up a new one.
  5. If you’re setting up State Unemployment, enter your SUI tax rate for each quarter. 
  6. When finished, select Next, then Finish. 

If your employee is subject to local taxes, set up the local tax items.

  1. From the Other tab, click anywhere inside the blank area in the Item Name box. Select the dropdown, then select Add New.
  2. Follow the instructions in the wizard to select the type of local tax, enter your account number, and rates.

Note: You’ll need to pay your local taxes and file local tax forms manually. Or you might consider QuickBooks Online Payroll Premium or Elite.

If you use QuickBooks Desktop Payroll Enhanced with e-file and e-pay

You may also need to set up e-file and e-pay for your new state. 

  1. Select Employees, then Payroll Taxes and Liabilities, and select Edit Payment Due Dates.
  2. Select Schedule payments.
  3. Select your new state tax, then select Edit.
  4. From the Payment (deposit) method, select E-pay.
  5. Select your Payment (deposit) frequency. Then select Finish.
  6. Select Continue.
  7. Select the bank account you want to use for tracking your e-payments in QuickBooks. This should match the bank account you submitted when you enrolled with your state tax agency. Then select Edit. 
  8. Enter your bank routing and account numbers. Then select Finish. 
  9. Select Continue, then select Finish Later.

Step 4: Sign new state authorization forms

Depending on your payroll service, you may need to sign authorization forms so we can pay your state taxes and file your forms.

You’ll see a To Do in your Payroll Overview to e-sign the authorization forms.

If you use QuickBooks Desktop Payroll Assisted, you’ll receive an email with the authorization forms and instructions to sign and send in.

If you use QuickBooks Desktop Payroll Basic, Standard, or Enhanced, you aren't required to sign authorization forms.

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