How to run multi-state payroll in the US

Expanding your team across state lines in the US opens up access to top talent — but it also introduces a maze of payroll compliance requirements. Whether you’re a startup hiring your first remote employee or a growing business with distributed teams, managing multi-state payroll can be daunting without the right knowledge and tools.

In this detailed guide, we’ll break down everything you need to know to run multi-state payroll confidently and compliantly — from registration to tax withholding, reporting, and best practices. So let’s jump straight in.

What exactly is multi-state payroll?

Multi-state payroll refers to the process of managing employee compensation, tax withholding, and reporting for team members who work in different US states.

It’s relevant if your business has (or plans to have):

• Remote employees living in different states
• Employees relocating (temporarily or permanently)
• Employees working across state lines, either regularly or occasionally (e.g., traveling salespeople or hybrid workers)
• Multiple office locations in different states
  
  

Why is multi-state payroll more complex?

Each state has its own employment laws, tax rates, and filing requirements — which means that, essentially, you must treat each one as a separate tax jurisdiction.

As a result, things can quickly get complicated as you’ll need to deal with:

• Different state income tax laws
• Varying registration and reporting obligations
• Reciprocity agreements (or a lack thereof)
• Nexus rules, which determine if you owe taxes in a given state
• Local taxes (e.g., city or county-level levies)
• Disability insurance or other state-mandated benefits, such as SUTA

To stay compliant, you must understand and follow the rules of each state where your employees live or work.

See also: How do FUTA and SUTA taxes work?

How to run multi-state payroll: A step-by-step guide

With all this in mind, let’s walk through the essential steps to properly running payroll across state lines:

1. Determine where you have payroll obligations

As touched upon, your obligations aren’t limited to the state where your company is registered. You may also need to withhold taxes and file reports in any state where:

• An employee resides and/or performs work
• Your business has a physical presence (such as an office, store, or warehouse)
• You have a sales or business nexus (i.e., a sufficient business connection to a state that may trigger tax or legal obligations.)
  
  

2. Register with each state’s tax authorities

In the states where you’re deemed to have payroll obligations, you’ll typically need to register your business with each state’s departments of revenue and labor.

Some states may also require separate registrations for other taxes and contributions, such as disability insurance and local or municipal taxes.

Registration processes vary by state, but most can be completed online using your federal EIN and other business details.

Top tip: If you use Remote’s PEO service for payroll and your other HR needs, Remote handles this for you! Learn more.

3. Understand the state’s income tax requirements

Many US states impose a state income tax (on top of federal income tax), which you must withhold from your employees’ wages.

These tax rates vary, with some using flat tax rates and others using progressive brackets. Some states also have reciprocal agreements, allowing residents working across state lines to pay tax only in their home state.

To learn more about each state’s individual tax requirements — and about hiring in general — check out our free US State Explorer tool.

4. Handle reciprocity agreements (if applicable)

Reciprocal agreements allow employees who live in one state and work in another to only pay income taxes in their state of residence.

For example, an employee who lives in New Jersey and works in Pennsylvania may only owe New Jersey tax. In such cases, the employee must submit a certificate of non-residency (like Pennsylvania’s REV-419 EX) to avoid double withholding.

Note that not all states have reciprocal agreements, so always verify what’s required based on where your employee lives and works.

Learn more: How do state tax reciprocity agreements work in the US?

5. Calculate and withhold the right taxes

As mentioned, each state has different withholding requirements. As well as federal withholding, you may also need to handle:

• State income tax
• State unemployment tax (SUTA)
• Disability or paid family leave taxes
• Local taxes

Requirements vary widely by state, and these laws can also change frequently. Therefore, it’s highly advisable to work with a payroll partner that stays on top of all changes and applies them automatically.

6. File your state payroll tax returns

You must file periodic payroll tax returns and pay taxes in each applicable state. Typically:

• Withholding tax returns are due monthly or quarterly
• Unemployment insurance filings are usually quarterly
• Annual reconciliations may be required
• Form W-2 must be filed with each applicable state at year-end

Deadlines and forms vary, so check with each state’s DOR and DOL — or work with a payroll partner that can handle this for you.

7. Comply with state labor laws

Payroll is not just about taxes — it's also about legal protections and benefits. In each state where you have obligations, you must comply with:

• Minimum wage laws (which, in some states, can vary by city)
• Overtime rules
• Sick leave and paid leave laws
• State-mandated benefits (like disability insurance and retirement plans)

Remember: even if federal laws (like the FLSA) provide a baseline, states can set stricter standards.

What about remote workers who move states?

If an employee relocates to a new state, you may need to:

• Register in the new state for withholding and unemployment
• End withholding in the old state
• Update your payroll records and state forms
• Ensure compliance with the new state’s local labor laws

As a result, always ask employees to notify you in advance of a move.

What if an employee moves temporarily to another state?

If the move is long enough (e.g., more than a few weeks), you may still need to register and withhold taxes in the new state — even if the move is “temporary.”

What about traveling or hybrid employees?

If an employee regularly works across states (such as a salesperson covering multiple areas states), it can create tax withholding obligations in multiple states.

Generally, in such cases, tax is owed where the work is performed — not where the employee (or your company) is based. Ensure that your employee tracks where exactly they have worked and for how long.

How can Remote help?

Managing payroll across multiple US states can be complex, but Remote streamlines the entire process into one easy-to-use platform — eliminating the need for multiple providers or manual tracking.

From automatic federal and state tax calculations to seamless payroll runs, Remote Payroll helps you stay compliant — no matter where your employees live and work. We handle state and federal reporting, keep you informed of regulatory changes, and organize all compliance documents for easy access. 

Our platform also accounts for remote and hybrid work setups, including home-based work addresses and reciprocity between states, so you can confidently support a distributed team without the administrative burden.

To learn more about how Remote can simplify your multi-state payroll operations — and give you peace of mind — speak to one of our friendly experts today.