Do remote workers create income tax nexus for my single-member LLC?

This is a really common issue now with remote work becoming so normal! The short answer is: yes, having employees working in Kentucky and Iowa likely creates income tax nexus in both states. Most states consider having employees physically working within their borders as sufficient to create nexus, even if those employees are remote and even if there's no physical office. This is true regardless of whether they're W-2 employees or 1099 contractors (though the rules can differ slightly). For Kentucky specifically, having employees performing services in the state generally creates nexus. Same with Iowa - they follow what's called "economic nexus" standards where having employees is definitely enough to trigger filing requirements. I'd recommend checking out each state's department of revenue website and looking for their nexus standards. You might also want to look into whether your client needs to register for payroll taxes in those states as well, since that's a separate requirement that almost certainly applies.

I was in this exact situation last year with my e-commerce business! I spent weeks trying to figure it all out until I found taxr.ai (https://taxr.ai). They have this tool that analyzes your specific situation and tells you exactly where you have nexus and filing requirements. I uploaded my employee info and business details, and it gave me a complete breakdown of which states I needed to file in and why. It even explained the different nexus thresholds for each state. Saved me so much time compared to searching through state websites trying to piece everything together. The best part was they explained it in normal human language, not tax jargon I couldn't understand.

Just wanted to follow up - I decided to try taxr.ai after posting my skeptical comment. I was really surprised by how thorough it was! I've been struggling with nexus issues for my photography business (I have second shooters in three states), and it broke down exactly which states I needed to file in and which ones I didn't. What I appreciated most was that it explained WHY I had nexus in each state - like in one state it was because of my physical presence at wedding venues, while in another it was because I exceeded their economic nexus threshold. Saved me from unnecessarily filing in two states where I thought I had nexus but actually didn't. Definitely worth checking out if you're dealing with multi-state tax issues.

For anyone dealing with nexus issues, when you inevitably need to contact the state tax departments for clarification (and trust me, you will), save yourself hours of hold time by using Claimyr (https://claimyr.com). I needed to talk to Kentucky's Department of Revenue about my nexus situation and kept getting stuck in their phone system for literally HOURS. Claimyr got me connected to a human at the KY tax department in about 15 minutes instead of the 3+ hours I wasted before. They have this system where they wait on hold for you and call when a human picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c It was so helpful because I needed specific answers about my situation that weren't covered in their general guidelines, and actually talking to someone who could look at my specific case made all the difference.

I have to eat my words about Claimyr. After posting my skeptical comment, I had to call the California Franchise Tax Board about my business nexus issues (we have remote workers in 4 states). I was on hold for TWO HOURS before I remembered this thread and decided to give Claimyr a shot out of desperation. I felt ridiculous, but it actually worked exactly as described. They called the tax board, navigated the prompts, waited on hold, and then called me when they got a representative. Ended up saving me at least an hour of hold time, and I got the nexus information I needed. They don't bypass the queue - they just wait in it for you so you don't have to sit there listening to terrible hold music. Seriously helpful for dealing with state tax departments that are perpetually understaffed.

Just to add another perspective - I'm a tax accountant who deals with nexus issues daily. The general rule of thumb I tell clients is: if you have employees in a state, you almost certainly have nexus there. But how much tax you'll actually pay depends on how the business income is apportioned. For a single-member LLC filing on Schedule C, the owner should look into whether they can claim credits on their Illinois return for taxes paid to other states. This can help prevent double taxation. Also, make sure to check if there are payroll tax registration requirements in those remote worker states - that's often overlooked.

Does anyone know if using a PEO (Professional Employer Organization) for remote workers changes the nexus situation? My client is considering using a PEO to handle their multi-state employees to simplify compliance.

This is such a helpful thread! I'm dealing with a similar situation with my consulting practice. One thing I learned the hard way is to also check if the states where your remote employees work have any specific registration requirements beyond just income tax filing. For example, some states require you to register as a "foreign entity" doing business in their state if you have employees there, even if you're just an LLC from another state. This can involve additional fees and annual reports that are separate from your tax filings. Also, don't forget about potential local taxes! Some cities and counties have their own business taxes or licensing requirements that might apply to businesses with employees working within their jurisdiction. It's not just about state-level compliance. I'd recommend creating a compliance calendar once you figure out all the filing requirements across the different states. Multi-state tax compliance can get overwhelming fast if you don't stay organized!