If you have employees who perform work in more than one state during a pay period or periodically during the year, review the localization of work provisions. This will help you determine which state's payroll taxes the employee services are subject to and how to set them up in QuickBooks Desktop.

Roaming employees

QuickBooks Desktop Payroll is able to track more than one state’s payroll taxes if the employee is transferred from one state to another; however, it does not support roaming employees (employees who report multiple work state taxes when working in more than one state during a pay period or periodically during the year). We do not recommend creating multiple paychecks in a pay period for multi-state reporting, for Assisted, Enhanced, Basic or Standard Payroll subscribers.

Localization of Work Provisions

When an employee performs services in more than one state during a pay period or periodically during the year, there are four tests that are recommended for employers to use in order to determine which state’s payroll taxes the employee services are subject to.
  1. Localization - An employee's services are "localized" in a single state, and, therefore, considered subject to that state's payroll taxes if all or most of the employee's services are performed in that state with only incidental services performed elsewhere (for example, where the out-of-state service is temporary or transient in nature or consists of isolated transactions).
  2. Base of Operations - If test (1) does not apply in any state, services are considered subject to a single state's payroll taxes if some of the services are performed in that single state and the employee's one and only "base of operations" for all of his or her services is in that single state. "Base of operations" is defined as a more or less permanent place from which the employee starts work and customarily returns to receive employer's instructions, to receive communications from customers or others, to replenish stocks or supplies, to repair equipment, or to perform other functions relating to the rendition of services.
  3. Place of Direction and Control - If tests (1) and (2) do not apply in any state, an employee's services are considered subject to a single state's payroll taxes if some of the services are performed in that single state and the "place from which the employer exercises basic and general direction and control" over all the employee's services is in that single state.
  4. Residence of Employee - If tests (1), (2), and (3) do not apply in any state, an employee's services are considered subject to a single state's payroll taxes if some services are performed in that single state and the employee's "residence" is in that single state. Residence means having a more or less permanent place of abode. It is more than a mere transient stopover but does not require the intent necessary to establish a permanent residence in the domiciliary sense.

You may refer to the article on Localization of Work Provisions for more information.

Also, most states subscribe to the Interstate Reciprocal Coverage Arrangement (IRCA). This provides that an employer may request written approval to report all wages paid to a multistate employee to any state in which (a) services are performed, (b) the employee has a residence, or (c) the employer maintains a place of business. If interested, the employer should contact the selected state for further details.

Before taking any action, we strongly recommend you consult with an accountant, as well as the applicable state tax agencies, to determine your situation and what payroll taxes the employee(s) services may be subject to.