Redirecting to cart, please wait...
You have items(s) in your cart.
by Mitch Freedman, CPA/PFS
We're a business located only in California, and we want to hire a full-time employee who lives and will do work in Colorado. Do we withhold his income tax in the state of California or in Colorado? Do we need to have an employer tax ID for Colorado or just in California?
The quick and easy answer is that by having a resident Colorado employee, your organization is doing business in Colorado, and thus your employee will have to report her income on a Colorado Resident Income Tax Return. As she is not a California resident nor is she working in California, you shouldn’t withhold California tax, and she will not have to report her income to California.
You must obtain a Colorado state income tax withholding number and also a Colorado unemployment insurance number. If you are using a service company to handle your payroll, they should be able to obtain these numbers for you. Your Federal Employment Identification Number will continue to be used for Federal Income Tax, Social Security, Medicare, and Federal Unemployment Insurance purposes. If you are generating sales in Colorado, you will likely have to collect Colorado sales taxes. And there may be other business reporting requirements, including business income taxes, that need to be reported to Colorado.
The issues involved with operating in multiple states are complex, and I recommend that you speak with your CPA. If you do not have a CPA you can find one here.
Mitch Freedman, CPA/PFS, is the owner of MFAC Financial Advisors, Westlake Village, California. You can reach him at (818) 905-0321.
Have a question for Ask a CPA? Ask it here.