Hiring Remote Employees? Here's What You Need To Know
Remote work is here to stay. Your best candidate might live in Texas while your office is in California. Your top developer might want to move to Colorado next year.
That's great for talent—and complicated for taxes.
Every state where you have employees creates new tax obligations. Miss them and you'll face penalties, back taxes, and headaches you don't need.
Here's how to hire remote workers without tax surprises.
You need to register in every state
Hire someone in a new state? You need to register your business there before they start.
This covers:
- Payroll tax withholding
- Unemployment insurance
- State income tax filings
- Worker's compensation (sometimes)
Start early. State tax agencies are swamped with remote work registrations. What used to take two weeks can now take two months.
Don't wait until your new hire's first day. Begin the registration process as soon as you make an offer to someone in a new state.
Withholding gets complicated fast
Each state has different rules for income tax withholding. Some have no income tax, others have multiple brackets and rates.
Your payroll provider should handle this automatically once you're registered. But you need to make sure they know about every state where you have employees.
Track employee moves. That developer who relocated to Colorado? You need to update their withholding immediately, not at year-end.
Cities matter too
Some cities impose their own taxes on top of state requirements. New York City has a separate income tax for employees who work there. San Francisco collects a payroll tax based on total compensation.
Most cities with employee taxes are in California and New York, but check any major city where you have remote workers.
Know your nexus triggers
"Nexus" means you have enough business activity in a state to create tax obligations.
One employee usually creates nexus for:
- Income tax withholding
- Unemployment taxes
- Potential corporate income tax filing
But rules vary by state. Some require corporate tax filings with just one employee, others have higher thresholds.
Plan for temporary vs permanent moves
Employee taking a three-month working vacation in Miami? Different rules than someone who permanently relocates there.
Temporary assignments: Often 30-90 days before triggering new state obligations
Permanent moves: Create immediate tax requirements
Ask employees about their plans. A temporary stay might not require full state registration. A permanent move definitely does.
Common remote work tax mistakes
Assuming contractors solve everything. Independent contractors create their own compliance issues. Employee classification matters more than location.
Ignoring local taxes. State registration is just the start. Some cities and counties have additional requirements.
Waiting until year-end. Tax obligations start when employees do, not at tax time.
Using the wrong payroll provider. Make sure yours can handle multi-state payroll before you hire remotely.
What this costs
State registration fees typically run $50-500 per state. Ongoing compliance varies but budget for:
- Monthly payroll tax filings
- Quarterly unemployment reports
- Annual reconciliations
- Potential corporate tax returns
The real cost is complexity, not fees. Each state adds administrative overhead.
Get help early
Multi-state payroll and tax compliance isn't a DIY project. The rules change constantly and penalties add up fast.
Work with:
- A payroll provider that handles multi-state compliance
- An accountant familiar with remote work tax issues
- Legal counsel for employee classification questions
Your remote hiring checklist
Before making an offer to someone in a new state:
- Confirm they're an employee, not a contractor
- Research that state's employment tax requirements
- Check for city-level taxes where they'll work
- Start business registration process
- Update your payroll system
- Verify worker's compensation coverage
- Review your employment policies for state law compliance
The bottom line
Remote work opens up talent pools but creates tax complexity. Plan ahead, register properly, and get professional help.
The best remote employees are worth the extra compliance work. Just don't let tax issues surprise you later.
Managing multi-state payroll and tax compliance? Pilot handles complex tax situations so you can focus on growing your team. Talk to our tax experts about keeping your remote workforce compliant.
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