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Payroll Taxes - out of state

55973115597311 3 Posts
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I have an employee who turned in a change of address form changing her address from Lexington Kentucky to Columbus Ohio.  Clearly she does not commute from Columbus (3-4 drive) and told us that she did this because her mom claims the employee on mom's tax returns. Previously, her mom lived in Illinois and we were told that Illinois made the employee pay Illinois state taxes even though she lives and works in Kentucky.  I believe mom claims the employee on the mom's tax returns because the employee is a student.  I do not understand the reasoning for this and am hoping that someone can help me.  It does not seem right that another state can make you pay taxes when you do not live or work in that state.  If I change the address, then our local taxes miss out because we have a local city tax and a local school tax.  Help?????
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  • regdunlopregdunlop 176 Posts
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    something doesn't seem right. you can let the employee know that providing false information on a w-4 could subject her to a $500 fine.  there are some cases when you have to pay taxes in two states -- when you live in one and work in another -- but i have never heard of paying taxes in state where you neither work or live.
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  • sdiconzasdiconza 35 Posts
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    Most tax declaration forms (Fed W-4) say that providing false statements will subject you to penalties. Presumably, the state form has a similar statement. You could point out to the employee that this is the case. Laws re: dependency are different in some states, some requiring residence,some just an age of minority. I am not familiar with Ohio, but she (or her mother) may want to look into this.
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  • 55973115597311 3 Posts
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    Update ----- I contacted the State of Ohio via email and they wrote back "As long as your employee is maintaining Ohio as their state of residency and is registered to vote in Ohio and not Kentucky, under the reciprocity agreement we have with Kentucky they would not be required to pay tax to Kentucky."  Does this mean that I should take out Ohio tax instead?  I am not set up for this.  Will she just not pay any state taxes?  What happens with my local taxes? 
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  • sdiconzasdiconza 35 Posts
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    Since you are doing business in Kentucky, and ultimately have to answer to them, I would get written confirmation of this reciprocity agreement from KY, and then figure out the payroll implications. Do you outsource? If so, the vendor shoudl be able to handle. If you do not, sounds like you have to figure out OH taxes, if the KY state DOL can confirm.
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  • dhall111dhall111 123 Posts
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    OK, let me preface this by saying I'm not a payroll expert.

     But we ALWAYS withhold based on the state work is performed in.  If they "reside" in another state then they can file for a refund at the end of the year.  Now, I don't know about KY, but maybe they have an "exempt" status for those that live in OH, but she would still have to complete the KY withholding form.

     Right?

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  • IT HRIT HR 595 Posts
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    That is not always the case.  For example, I work in MD.  We have employees that live in MD, DC, and VA (as do many of the employers in this area).  All three states have a reciprocity agreement that you take taxes out from the state the employee LIVES, as that is where they are paying & filing taxes.  So, if OH and KY have this agreement then you would take out taxes from the state in which the person lived (in this case Ohio). 

    As far as computing the taxes, if you have a 3rd party vendor then they can do this for you.  If you do this yourself then I would contact your accountant to help you do this.

    It is my understanding that most of the states that have lots workers crossing borders have these agreements.  If you are an employer close to the state line and have employees in multiple states then I would find out what taxes you are supposed to take out.

     

     

     

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  • HRBikerHRBiker 17 Posts
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    In Kentucky, a nonresident employee is not subject to state income tas withholding when the employee is a resident of a state having a reciprocal exemption agreement with Kentucky. Kentucky has reciprical agreements with  Illinois, Indiana, Michigan, Ohio, West Virginia, and Wisconsin. Employees, however, must file a certificate of nonresidence, Form 42A809, to obtain this exemption.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

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