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Set up reciprocity

If reciprocity exists between your employee's state of residence and work state, you can withhold their income taxes in their resident state.

Step 1. Register for a withholding ID with the resident state

If your employee's resident state already exists in your Gusto account with a withholding ID, you don't need to complete step one.

  1. Register and obtain a withholding ID for this resident state.
    • Head to the State Tax Registration section of our Help Center and follow the steps to register for withholding in the new state.
      • Keep in mind: while reciprocity is determined by an employee's home address and pertains to their income tax withheld, unemployment liability is typically determined by an employee's work address. Before registering for unemployment tax in a new state, reach out to an accountant or the applicable state agency for determination of liability.

Step 2. Receive a signed Certificate of Nonresidency

  1. Search online for the applicable state's non-residency certificate.
  2. Give the non-residency certificate to your employee to fill out and sign.
  3. Once you have a signed non-residency certificate from your employee, keep it stored for your records.
  4. Click the People tab.
  5. Click your employee's name.
  6. Click edit next to the applicable work state under State Tax Settings.
  7. Elect that the certificate has been filed and Gusto should not withhold in the work state.

Step 3. Elect to withhold income taxes in the resident state

  1. Click the People tab.
  2. Click your employee's name.
  3. Navigate to the Personal tab.
  4. Next to Employee Addresses, click Edit.
  5. Next to Pay Home Taxes, select Yes, Gusto should withhold and pay the employee's home taxes.
  6. Click Save.

Step 4. Enter a withholding ID for the resident state

If your employee's resident state already exists in your Gusto account with a withholding ID, you don't need to complete this step.

  1. Click the Company Details tab.
  2. Next to the employee's resident State Tax Setup, click Edit.
  3. Enter the withholding ID.
  4. The next time you run payroll, we'll withhold and pay income tax to the employee's state of residence.

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