Hiring an Employee in a New State: Tax and Compliance Checklist

Hiring somebody in a state you do not operate in creates obligations to that state, and remote working has made this an ordinary situation rather than an unusual one.

The obligations begin with the hire, not with the first return, and they involve several different agencies. Businesses that hire first and register afterwards end up filing late for a period they cannot undo.

This covers what creates the connection to a state, the registrations required and with whom, how withholding and unemployment insurance are handled, and the state-specific requirements that catch people out.

Why Hiring in a New State Is More Complicated Than It Looks

When your company hires an employee in a state where it was not previously registered, you typically create nexus in that state, triggering registration, tax withholding, unemployment insurance, and workers' compensation obligations. Ignoring these requirements leads to penalties, back taxes, and interest.

Step 1: Understand What 'Nexus' Means for You

Nexus is the legal connection between your business and a state that triggers tax obligations. Different types:

Hiring one remote employee in a new state typically creates nexus for all four.

Step 2: Register with the State Department of Revenue

Once you have nexus, register before you run your first payroll in the state:

• Register with the state department of revenue (or equivalent) for income tax withholding
• Registration is usually online through the state's business portal
• Receive a state withholding account number, you will need this for payroll
• Note: some states have no income tax (Texas, Florida, Wyoming, Nevada, Washington, South Dakota, New Hampshire on wages, Tennessee on wages)

Step 3: Register for State Unemployment Insurance (SUTA)

Every state requires employers to pay State Unemployment Tax Act (SUTA) contributions for employees working in that state:

• Register with the state workforce or employment agency
• Receive a state unemployment account number
• New employer SUTA rates vary by state (typically 1%-3.5% on first $7,000-$50,000 of wages)
• Rates increase based on your claims history over time

Step 4: Set Up Workers' Compensation

Most states require workers' compensation insurance for any employee. Requirements:

• Purchase a state-approved workers' comp policy covering the new state
• Some states have state-run monopolistic workers' comp funds (Ohio, Washington, Wyoming, North Dakota)
• In monopolistic fund states, you cannot use a private insurer, you must pay into the state fund
• Contact your existing workers' comp insurer to add the new state

Step 5: Handle State Income Tax Withholding

Withhold and remit state income taxes from employee paychecks to the new state. Key considerations:

• Use the new state's withholding tax tables (not your home state's)
• Update your payroll software (ADP, Gusto, Rippling, etc.) to add the new state
• Withholding frequency (monthly, semi-weekly, quarterly) is set by state rules based on tax liability

Multi-State Withholding: Remote Worker Complications

When an employee lives in State A but works for a company in State B:

• Most states tax income based on where it is earned (work state), not where the employee lives
• Some states have reciprocity agreements: employee only files in their home state
• New York's 'convenience of the employer' rule: NY taxes remote work even if employee is elsewhere
• Employee may need to file returns in both states and claim a credit to avoid double taxation

Step 6: File New Hire Report

Federal law requires reporting new hires within 20 days of hire date to both:

• The federal National Directory of New Hires (through your state agency)
• The new state's New Hire Reporting Program

Information required: employee name, address, SSN, start date; employer name, address, EIN.

Step 7: Verify State Minimum Wage

Minimum wage varies by state and sometimes by city. As of 2026, many states have minimum wages well above the federal $7.25/hour. Cities like Seattle, San Francisco, and New York City have their own higher minimums.

Step 8: Check for Additional State-Specific Requirements

Some states have requirements beyond the basics:

• Paid Family Leave: California, New York, New Jersey, Washington, Massachusetts, Colorado (employee-funded, requires deductions)
• State disability insurance: California (SDI), New York, New Jersey, Hawaii, Rhode Island
• Paid sick leave: Over 15 states and many cities require paid sick leave accrual
• Pay transparency: California, New York, Colorado, Washington require salary range disclosure
• Non-compete restrictions: California, Minnesota, others heavily restrict or void non-competes

Payroll Software Setup Checklist

• Add new state to your payroll platform
• Enter state tax account numbers (withholding + unemployment)
• Configure workers' comp code for new state
• Set up any state-specific deductions (paid leave, disability)
• Verify year-end W-2 will include new state wages and withholding

Frequently Asked Questions

Written by

Abhinav Gupta, CPA, CA, MBA

Abhinav works with business owners across the US on industry-specific bookkeeping, from dental practices and restaurants to construction and e-commerce. He writes about what each trade's books actually need. Connect on LinkedIn