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Administrator Guide
Last Updated: 2023-06-23
Concept: Multistate Withholding Rules (USA)

Concept: Multistate Withholding Rules (USA)

When you have workers who live and work in different states, you can use the
View Payroll Multistate Withholding Rules
 report to understand:
  • Which states, if any, have reciprocal agreements.
  • How Workday applies any reciprocal agreements to resident and work state tax withholdings.
  • How Workday calculates resident and work state withholding when states don't have a reciprocal agreement.
This report organizes the rules by state for calculating tax withholding into these categories:
Category
Subcategories
State = Resident
Reciprocal Agreement Exists
No Reciprocal Agreement
State = Work
Reciprocal Agreement Exists
No Reciprocal Agreement
Military Spouse Exemption
For each of these categories, subcategories identify whether to calculate the state and, if so, how to calculate the withholding when the state is:
  • The resident state and there’s a reciprocal agreement with the work state.
  • The resident state and there isn't a reciprocal agreement with the work state.
  • The work state and there’s a reciprocal agreement with the resident state.
  • The work state and there isn't a reciprocal agreement with the resident state.
The
Calculate State
 columns identify when to calculate the state by indicating either:
  • True
    , which means always calculate.
  • The condition under which Workday calculates state taxes.
The
Calculation Method
 columns identify how to calculate state taxes by indicating either:
  • No calculation method, which means that Workday calculates full state withholding.
  • The calculation method for how to withhold tax.
To change or override existing withholding elections or rules, you can use these tasks:
  • Add Worker US Tax Elections
  • Complete State and Local Withholding Elections
     where workers can manually submit residency forms.
  • Edit Company State and Local Tax Reporting
     to override the default multistate withholding rule for resident state when there’s no reciprocal agreement.

Examples

Michelle lives in New Jersey and works in Pennsylvania and filed a Nonwithholding Certificate with their work state tax elections. You need to determine how Workday calculates tax withholding for both the resident and work states.
You access the
View Payroll Multistate Withholding Rules
 report, select
New Jersey
 and
Pennsylvania
 from the
Payroll State Authorities
 prompt, and consider:
Resident State Taxes
New Jersey has a reciprocal agreement with Pennsylvania, so Workday must determine:
  • Whether to withhold resident state taxes.
  • Under what conditions to withhold resident state taxes.
  • The calculation method to use.
In the
State = Resident / Reciprocal Agreement Exists
 section, Workday follows the rules specified for New Jersey:
Column
Description
Calculate State
True
 indicates that resident state tax is calculated.
Calculation Method
Resident State Tax - City Work EE Tax (if > 0)
 tells Workday to calculate resident state tax minus work city tax.
Work State Taxes
Pennsylvania has a reciprocal agreement with New Jersey, so Workday must determine:
  • Whether to withhold work state taxes.
  • Under what conditions to withhold work state taxes.
  • The calculation method to use.
In the
State = Work / Reciprocal Agreement Exists
 section, Workday follows the rules specified for Pennsylvania:
Column
Description
Calculate State
Tax Calc (State-WH Reciprocity): Certificate of Non-Residence Does NOT Exist
 tells Workday to calculate work state tax if the worker doesn't have a Certificate of Non-Residence.
Workday doesn't withhold work state taxes for Michelle, because they filed a Nonwithholding Certificate for Pennsylvania.
You want to understand the different scenarios in which Workday calculates tax withholding for residents and workers in Indiana.
You access the
View Payroll Multistate Withholding Rules
 report and select
Indiana
 as the
Payroll State Authority
. You view the report and see:
States That Indiana Has Reciprocal Agreements With
State = Resident / Reciprocal Agreement Exists - Withhold Tax - True
For workers who reside in Indiana and work in a state in the list, Workday calculates Indiana state tax. Whether Workday calculates work state tax depends on the work state and the rules associated with that state.
State = Resident / No Reciprocal Agreement - Withhold Tax - True
For workers who reside in Indiana and work in a nonreciprocal state, Workday calculates Indiana state tax.
State = Resident / No Reciprocal Agreement - Calculation Method - Resident State Tax - Work State Tax (if > 0)
For workers who reside in Indiana and work in a nonreciprocal state, then Workday calculates Indiana resident tax and reduces that tax by the withheld work state tax.
State = Work / Reciprocal Agreement Exists - Withhold Tax - Tax Calc (State-WH Reciprocity): Certificate of Residence Does NOT Exist
If Indiana is the work state and a worker lives in one of the reciprocity states listed, Workday calculates Indiana work tax only if the worker doesn't have a certificate of residency filed.
State = Work / No Reciprocal Agreement - Withhold Tax = True
If Indiana is the work state but the worker lives in a state other than a reciprocity state, just withhold Indiana work state tax.