Expanding your business into a new state is exciting, but it comes with administrative challenges—particularly when it comes to payroll. Each state has unique tax requirements, reporting obligations, and compliance considerations. This guide walks you through the essential steps to set up payroll in a new state.

1. Register with State Agencies

Before processing your first payroll, you need to establish your business with several state agencies:

State Department of Revenue: Register for a state income tax withholding account
State Department of Labor: Register as an employer and for unemployment insurance
Secretary of State: If you haven't already, register your business entity to operate in the state
Workers' Compensation Agency: Set up coverage for employees (requirements vary by state)

Pro Tip: Many states now offer one-stop registration portals that allow you to register with multiple agencies simultaneously.

2. Understand State Tax Withholding Requirements

State income tax withholding varies significantly:

Some states have flat tax rates
Others have progressive tax brackets
Some states (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) have no state income tax
New Hampshire only taxes dividend and interest income

You'll need to:

Obtain and distribute the proper state withholding forms to employees
Configure your payroll system with the correct state tax tables
Determine if local taxes also apply (city, county, or school district taxes)

3. Learn State-Specific Payroll Laws

Each state has different requirements regarding:

Minimum wage: May be higher than the federal minimum wage
Overtime calculations: Some states have daily overtime thresholds
Pay frequency: Requirements for how often employees must be paid
Final paycheck timing: Deadlines for providing final pay to terminated employees
Paid leave laws: Sick leave, family leave, or other mandatory paid time off
Pay stub requirements: Specific information that must be included on pay statements

4. Set Up State Unemployment Insurance (SUI)

After registering for unemployment insurance, you'll need to:

Note your assigned SUI tax rate (typically higher for new employers)
Understand the state's wage base (the maximum amount of wages subject to SUI tax)
Learn the filing frequency and deadlines for SUI reports and payments

5. Configure Your Payroll System

Update your payroll system to accommodate the new state's requirements:

Add the new state tax codes and rates
Set up additional local tax codes if applicable
Configure work locations for proper tax jurisdiction assignment
Update wage bases for various state taxes
Set up state-specific deductions or benefits

6. Establish a Compliance Calendar

Create a calendar that includes:

Due dates for state tax deposits
Quarterly and annual filing deadlines
Renewal dates for business licenses and permits
Deadlines for annual reconciliation reports

7. Consider Multi-State Payroll Complexities

If you'll have employees working in multiple states, be aware of:

Reciprocity agreements: Some neighboring states have agreements that simplify withholding for commuters
Telecommuting considerations: Special rules may apply for remote workers
Multi-state taxation: Understanding when employees might be subject to taxation in multiple jurisdictions

8. Implement Proper Documentation Procedures

Maintain thorough records including:

State tax registration documents
Copies of employee state withholding forms
Records of all state tax payments and filings
Documentation of state-specific employment policies

Join our waitlist and see how we can help you organize your checklists! Lnktup.com

Disclaimer: This blog post is intended for informational purposes only and does not constitute legal, tax, or accounting advice. Consult with qualified professionals regarding your specific business situation.

Setting Up Payroll in a New State