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Many employers struggle with the decision of where to report their employees who work in more than one state.   There are four points that must be evaluated in the order listed in this blog.    A fifth option exists if none of the following guidelines apply.

The first step is to determine the localization of the employee.   If the employee works mainly in one state with work occasionally in another state, the employee should be reported to the localized state.   For example, a foreman usually works Arizona.   The foreman in New Mexico is out sick for two months, and the foreman in Arizona is sent to work until his return.   The employee should be reported to Arizona.   The assignment is out of the ordinary, and the foreman will return to the same locality.

If that scenario does not fit, determine the base of operation, which is where the employee starts to work and usually returns to receive additional assignments.  For example, an employee works out of an office in New York.   The employee services customers in New York, Connecticut, and New Jersey.  The direction and control come from the parent company in Pennsylvania.    Since there is a true base of operation, the employee is reported to New York.

A third scenario, if the first two do not define your employee, is to use the place of control.   If immediate or potential control is exercised even rarely, the reporting state may be determined where this occurs and the employee supplies services in that state.   For example, an employee supplies services in Maryland, Virginia, and Washington DC.   The employer is also Maryland and provides direction.   The employee should be reported to Maryland since there is no localization and no base of operation for the employee.

If those three options fail, the employee can be reported to their place of residence.   For example, a CPA (Certified Public Accountant) performs audits around the country to various employers.    The CPA set up residence in the state of Missouri.    The CPA may be in three- five states in a given week but always returns home to their residence for the next assignment.    The CPA is reported to the state of Missouri.

If the four scenarios mentioned above do not apply, the location of the work should be used.  For example, a construction worker reports to a site in Arizona for two months and then moves to California for three months.   There is no base of operation, the direction and control come from the site, the employee does not return home – the employee is reported for two months to Arizona and then is reported to California for the next three months.  As long as the employee moves within the same FEIN as they worked under in Arizona, the taxable wage base for FICA, FUTA, and SUTA can be continued as the employee moves from state to state.

If an employee is transferred to another state but still holds a residence in another state, the above rules do not apply.   The employee would be reported to the state in which they were transferred to regardless of holding a residence elsewhere.  As long as the employee moves within the same FEIN as they worked before they were transferred, the taxable wage base for FICA, FUTA, and SUTA can be continued.  The employee who does not travel is always reported to the state in which the work is performed.


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