Remote Work and Payroll Tax Nexus: New Obligations in Every State You Hire

The shift to remote work didn’t just change how companies operate—it fundamentally changed the map of their payroll tax obligations. Before 2020, most employers had a relatively clear picture of which states they owed taxes in: the states where their offices were, plus any states where they had salespeople or field staff. Remote work collapsed that clarity overnight.

Today, a company headquartered in San Francisco with 200 employees might have workers living in 30 different states. Each one of those states can assert taxing jurisdiction over the company—and most will. Understanding how remote work creates payroll tax nexus is no longer optional for any employer with distributed employees.

What Is Payroll Tax Nexus?

Nexus is the legal concept that determines when a state has sufficient connection to a business to impose a tax obligation on it. For sales tax, nexus is triggered by economic activity or physical presence. For payroll taxes, the analysis is more straightforward: if you have an employee performing work in a state, you generally have payroll tax nexus in that state.

This means the nexus question for payroll purposes is largely binary: does the company have employees working in State X? If yes, the company owes payroll taxes in State X. It doesn’t matter whether the company has an office in State X, whether it has customers there, or whether the employee spends only part of their time there.

A full-time remote employee working from Austin, Texas creates Texas employment tax nexus for their employer—even if the employer has never had any other presence in Texas and has no intention of opening a Texas office.

The Registration Cascade

When an employee starts working in a new state, the employer’s obligations don’t begin automatically. They begin after the employer registers with the appropriate state agencies. And registration is not a one-time, one-agency process.

For most states, you’ll need to register with at least two agencies:

1. The state’s department of revenue or taxation for income tax withholding (in states with income tax)
2. The state’s department of labor or workforce development for state unemployment insurance

In some states, these registrations are unified under a single business portal. In others, they’re completely separate processes with separate account numbers, login credentials, and processing timelines.

Delays matter. If you onboard an employee in a new state and don’t register promptly, your first few payrolls may go out without proper withholding—which means you’ll need to correct the employee’s withholding on subsequent payrolls, potentially under-withhold for the year, and risk penalties for late registration.

Temporary vs. Permanent Remote Workers

Not all remote work is equal from a nexus perspective. States generally distinguish between:

Permanent remote workers: Employees who have no other work location and perform all or substantially all of their work from their home state. These employees clearly create nexus in their home state.

Temporary or occasional remote workers: Employees who normally work at an office in one state but occasionally work from home in a different state. The nexus implications here are murkier and depend significantly on state law.

Many states have de minimis thresholds—an employee who works in the state for fewer than a certain number of days may not trigger withholding obligations. For example:

• Some states exempt employees who work there for fewer than 14 days per year
• Some states use a dollar threshold rather than a day threshold
• Some states have no de minimis provision at all—even one day of work creates a filing obligation

For traveling employees, managing these thresholds requires day-tracking systems that most companies don’t have. The practical result is that many employers either ignore the threshold rules (creating risk) or choose to withhold broadly to avoid penalties (creating employee tax complexity).

The Convenience of the Employer Doctrine

One of the most consequential—and controversial—state tax policies affecting remote workers is New York’s “convenience of the employer” rule. Under this doctrine, a nonresident employee who works remotely is treated as though they worked in New York for purposes of New York income tax—unless they work remotely out of necessity imposed by the employer, rather than personal convenience.

In practice, this means a software engineer who lives in New Jersey and works remotely for a New York employer may still owe New York income taxes on all of their wages, even if they never set foot in New York. New York’s position is that if the employee chose to work remotely rather than being required to do so by the employer, the wages are New York-sourced.

This rule was highly controversial during the pandemic, when employees were genuinely required to work remotely. Several states (including Pennsylvania and Arkansas) have similar rules. The doctrine creates situations where employees are effectively taxed by two states without receiving the usual benefit of a reciprocity agreement or full resident credit.

For employers, the convenience doctrine means they may have withholding obligations in New York (or another convenience-doctrine state) for employees who aren’t physically there—and they need to be aware of this when processing payroll for remote workers employed by companies in those states.

COVID-Era Emergency Rules and Their Aftermath

During the pandemic, several states adopted emergency nexus relief policies—agreeing not to impose new withholding obligations solely because employees were temporarily working from home due to public health orders. Many of these temporary policies have since expired.

The expiration of COVID-era relief is important because it means the pre-pandemic rules—which many payroll teams deprioritized during 2020-2022—are now fully in effect again. Companies that expanded their remote workforce significantly during the pandemic may have unacknowledged payroll tax obligations that accumulated while emergency rules were in place and have not been resolved.

Conducting a payroll tax nexus review—auditing your employee locations against your registered states—is a worthwhile exercise for any company that grew its remote workforce over the past five years.

Practical Steps for Managing Remote Work Nexus

Collect work location data at onboarding and track changes. Your payroll system should capture not just the employee’s home address but their primary work location. For fully remote employees, that’s their home state. Whenever an employee moves, the work location record should be updated, and the payroll team should be notified to assess new nexus implications.

Build a state registration protocol. When a new state is added, there should be a documented process for completing all necessary registrations before the first payroll. This process should include timelines, responsible parties, and escalation paths for states with longer processing times.

Understand your de minimis exposure. For employees who travel or occasionally work from states other than their primary location, assess whether your exposure is likely to exceed any de minimis thresholds. If so, build tracking mechanisms to monitor day counts.

Review your New York (and similar state) exposure. If you have remote employees who work for New York-based operations, assess whether the convenience doctrine applies and ensure your withholding reflects your actual obligations.

The growth of remote work has permanently increased the complexity of payroll tax compliance. Companies that build systematic processes for managing nexus will handle that complexity without drama. Those that don’t will face it reactively—in the form of state notices, penalty assessments, and employee tax corrections.