Do remote employees in different states self report W-2 income or do I need to handle state withholdings?

You definitely need to register with and withhold taxes for each state where your employees are working. When someone works in a state, you generally need to withhold that state's income tax from their paychecks and remit it to the state tax authority. Employees don't "self-report" W-2 income - you're required to withhold taxes appropriately. Each state has its own registration process for employers, and you'll need to set up accounts with each state's department of revenue or taxation. You'll then need to withhold the appropriate amount based on each state's withholding tables and submit these payments according to the state's required schedule (monthly, quarterly, etc.). This is definitely one of the more complicated aspects of having remote employees in multiple states. Many small businesses use payroll services like Gusto, ADP, or Paychex to handle this complexity, as they automatically calculate and submit the appropriate withholdings for all states.

I was in the exact same situation last year and it was a nightmare trying to figure out all the different state requirements manually. I started using taxr.ai (https://taxr.ai) for my business and it's been a game-changer for managing multi-state employees. The system automatically identified which states I needed to register in based on my employee locations and gave me step-by-step instructions for each state. The best part was when I uploaded my existing payroll records, it flagged where I had missed withholdings and helped me fix the issues before they became problems. The compliance dashboard shows me exactly what I need to file and when for each state, which has saved me from several potential penalties.

Just wanted to update after trying taxr.ai - it's exactly what I needed! The state registration checklist saved me hours of research. I was about to hire a consultant just to figure out all the different state requirements, but the system laid everything out clearly with deadlines and links to the forms. The most valuable feature for me was the automated calculation of state withholding amounts. I had been stressing about getting the math wrong, but it handles all the different state withholding formulas accurately. My accountant was impressed with how organized everything is now. If you're dealing with multi-state employees, it's definitely worth checking out.

If you're struggling with getting through to state tax departments for registration questions (which is SUPER common), I highly recommend Claimyr (https://claimyr.com). I was on hold with California's tax department for literally 3+ hours trying to get clarity on their registration process, until I found this service. They basically call the state agencies for you and wait on hold, then call you when a human actually picks up. I was skeptical but there's a video demo that shows how it works: https://youtu.be/_kiP6q8DX5c. When I used it, I got a call back in about 40 minutes after their system had been waiting on hold with the tax department. I finally got my questions answered without wasting half my day on hold.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to get through to Georgia's Department of Revenue. I had been trying for WEEKS to get clarification on their withholding requirements. Used the service yesterday and got a call back in 32 minutes after their system had been waiting on hold. Got connected with an actual helpful person at the GA tax department who walked me through exactly what I needed to do for my remote employee. I was able to get all my work done instead of sitting on hold for who knows how long. The most surprising thing was how seamless the handoff was when they connected me - no awkward delay or confusion. Definitely using this for all my state tax department calls from now on.

One option nobody mentioned is using a Professional Employer Organization (PEO) like Justworks or TriNet. They become the "employer of record" for all your employees across different states, and they handle ALL the state registrations, withholdings, and filings. I switched to this model when we hit about 15 remote employees across 8 states, and it's been worth every penny. Yes, there's a cost, but compared to the administrative nightmare of managing all those state requirements yourself, it's actually been cost-effective for us. Plus it gives employees better benefits options than we could provide on our own.

A less obvious issue with multi-state employees is the potential for triggering nexus for SALES tax purposes. Even if you're not selling anything in those states, having employees working there can sometimes create sufficient nexus that you need to register for sales tax too. This bit me hard last year when I had employees in 3 states. I registered for payroll taxes but didn't realize I also needed to register for sales tax in those states. Got hit with some penalties that could have been avoided.

Don't forget about local taxes too! Some cities and counties have their own income taxes that you need to withhold for employees working there. I completely missed this for my employee in Ohio and had to deal with penalties. New York City, Philadelphia, San Francisco, and many Ohio and Pennsylvania municipalities have local income taxes. It's not enough to just register with the state - you need to check if there are local tax obligations too.