When withholding for a multi-state employee, the withholding is based on which factor?

• A. Employee's work location and residence
• B. Employer's headquarters location
• C. Employee's favorite state
• D. Random assignment

Answer: (A)

When handling a worker who earns income in more than one state, withholding is determined by where the work is done and where the employee lives. The state where the services are performed generally has the primary right to tax that income, while the employee’s state of residence matters for resident taxation, tax credits for taxes paid to other states, and any reciprocal agreements between states. Because of this, payroll typically bases withholding on both the work location and the employee’s residence. The employer’s headquarters location isn’t used to determine an individual employee’s withholding, and factors like the employee’s favorite state or random assignment have no tax-law basis.