Unemployment tax rules for multi-state employees determine which state unemployment tax fund employers pay for an employee. Further, under unemployment tax rules for multi-state employees, payment of federal and state unemployment taxes for each employee comes with the employer job description; the only way a laid-off or furloughed employee has access to unemployment benefits.
The state, to which the unemployment taxes are paid, for an employee, is the state that funds the employee’s unemployment benefits; taxes are not paid to more than one state for a multi-state employee.
Overall, the unemployment tax rules depend on the employee’s work scenario. To make the state unemployment determination, there are four types of tests that employers can use to determine which state an employee is covered by for unemployment purposes, the state to which the SUTA tax goes.
The four rules are:
- Localization of service.
- The base of operations.
- Direction and control.
- Residence.
If one test is not viable due to the employee’s situation not fitting the test then the employer can move onto the next test.
Localization Of Service
This test depends on whether the employee’s service is localized in the state. An employee’s work is said to be localized if the employee works entirely from that state. It is also said to be localized where the employee works primarily in that state and temporarily, like for instance in isolated situations, in other states.
Base Of Operations
If the employee’s service is not localized in one state, then the employer needs to ask whether the employee can perform some work in the state where the employer’s base of operations (means where an employee begins work or where an employee receives instructions of communications or replenishes inventory or repairs equipment or performs any tasks relevant to their job) is located.
Direction & Control
In case, there is no base of operations, the employer can ask if the employee can perform any work in the state where the service is directed and controlled. This means the place where the employer or a manager supervises the employee’s work.
Residence
This test is used when an employee does not work in the state where the work is directed and controlled. The test also requires the employer to ask whether the employee can conduct some work in the state where they live.
It is very rare for an employee to not meet any of the four rules. In case there is a case, then the employer may be able to elect to cover the employee’s service in one state. This is allowed by most states under an ‘Election of coverage’ provision or under the ‘Interstate Reciprocal Coverage Arrangement.”
Guidance On Unemployment Tax Rules For Multi-state Employees
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