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Set up courtesy withholding

You can set up the optional service to courtesy withhold residential state income taxes or local taxes for your employees with Gusto - this is in addition to any required taxes withheld for the work state.

  • Please note, some states do not withhold on residents who earn wages outside of the state. If that applies to your employee, we will not withhold for their state of residence.

Follow the below steps if your employee's state of residence does not yet exist in your Gusto account. Skip steps 1 and 3 if you've already registered to pay taxes in your employee's state of residence.

Keep in mind: Courtesy withholding applies to income tax, unemployment liability is typically determined by an employee's work address. Before registering for unemployment tax in the new state, reach out to an accountant or the applicable state agency for determination of liability.

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

  1. View the state tax setup article for the employee's state of residence.
  2. Register and obtain a withholding ID for the applicable home tax in the resident state.

Step 2. Elect to withhold home taxes in the resident state

  1. Click the People tab.
  2. Click your employee.
  3. Click the Personal tab.
  4. Scroll down to Home Address, click Manage Home Addresses.
  5. Under Actions click Edit.
  6. Next to Pay Home Taxes, select Yes, Gusto should withhold and pay your employee's home state taxes.
  7. Click Save.

Step 3. Enter a withholding ID for the resident state

  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 any state or local taxes applicable for the employee's state of residence.

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