Q: Do I pay state tax in both my home state and work state?
A: There are different rules regarding where you pay state income tax, so there is not just one blanket answer. It will depend on what state your permanent residence is and in what state you are working. When you get paid, you will notice both a federal and state withholding. In case you didn’t know, the withholding is the amount of money your employer allocates to the side to pay your income taxes at the end of the year.
Aureus Medical has an amazing accounting team that taxes our employees based on the tax laws and reciprocity rules for both the home state and the work state. Each state combination is specific and can change with each assignment, as home and/or work locations change.
With that being said, I always suggest checking with a tax professional about any specific questions you may have regarding taxes.
There are typically 4 scenarios that could apply to a traveling temp employee for state withholding tax purposes.
We withhold the full tax rate for work state, and the partial tax rate for your home state. Your withholding will be the higher tax percentage between the two states. So, let’s say your home state taxes income at 8% and your work state taxes at 6%. In this case, we will withhold the full 6% for the work state and the difference of 2% (8 – 6) for the home state. Total state taxes would equal 8%.
We will withhold the full tax rate for one of the states. Simply put, you will only be taxed for either the work state or the home state, but not both.
We will withhold nothing. Truthfully, this would only happen if neither your home state nor your work state has a state income tax. As of now, the only states with no income taxes are Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
We will withhold the full tax rates for both states. This happens if your home state is DC, Hawaii, Kentucky, Michigan, Montana, New Mexico, Oregon, or Wisconsin. In this event, your withholding is a combination of each state’s income tax rate.
Please understand that SOME of these states have reciprocity agreements with certain other states in which the above scenarios would change or not be applicable for a specific home state/work state combination.
Because of this, based on some individual tax scenarios, you could receive a refund when you file your annual state tax returns. I, again, suggest contacting a tax professional for specific questions or advice about these states!