Required taxes

Every Payroll Point lookup starts with two things: where the employee lives and where they work. When those are the same place, determination is straightforward. When they differ, three factors decide which state taxes are actually required: residency, employer nexus, and whether a tax is merely available for courtesy withholding.

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Home and work locations

A lookup takes one home location and one or more work locations. Each returned tax is marked resident or nonresident so you can see which location it came from. An employee working across several locations can have taxes from each, which is why the API accepts an array of work locations rather than a single one.

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Nexus

In the U.S., nexus means an employer has sufficient business presence in a state to be subject to that state’s income tax withholding requirements. An employer typically has nexus if it owns property, earns income, or has employees performing work in that state. Because nexus rules vary by jurisdiction, Payroll Point asks whether the employer has nexus in the employee’s home state on every lookup. The work state isn’t in question, since having an employee working there generally establishes nexus already. Nexus changes what comes back: If the value is left blank, Payroll Point assumes the employer does not have nexus in the home state.

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Example: nexus changes the result

An employee lives in Delaware and works in Pennsylvania. The two states have no reciprocity agreement, so the employee may be subject to income tax in both. Delaware taxes residents on out-of-state wages, and Pennsylvania taxes nonresidents on income earned there. Without nexus in Delaware, the home state is excluded and only Pennsylvania taxes are required:

• Pennsylvania SUI, nonresident
• Pennsylvania State Tax, nonresident

With nexus in Delaware, the home state is included and the employee is subject to both resident and nonresident taxes:

• Pennsylvania SUI, nonresident
• Pennsylvania State Tax, nonresident
• Delaware State Tax, resident

The multi-state SIT withholding rules that power this behavior are documented with the Symmetry Tax Engine.

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Courtesy withholding

Some taxes aren’t required for a given scenario but can be withheld voluntarily as a courtesy to the employee, sparing them from owing the amount at filing time. Ohio city taxes and Pennsylvania earned income taxes for employees working outside Pennsylvania are the common cases. Payroll Point returns these as additional taxes rather than required ones, so you can decide whether to withhold them. See Tax results for how the two are separated.

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Where to set these values

Nexus is set on the home location and the nonresident certificate on the work location. Both are inputs to every lookup: