The Employment Tax Struggle: Why Every Multi-State Business Needs a Strategy

Five years ago, remote work surged in popularity, transforming many businesses into multi-state organizations almost overnight. While this shift unlocked new opportunities, it also introduced immense payroll and employment tax challenges. As a payroll professional who has worked with companies expanding into over 40 states, I’ve seen firsthand the chaos that can arise from a poorly managed employment tax process. It’s time we talk about it more.

The Complexity of Employment Taxes

The employment tax process is intricate, requiring coordination across multiple departments and often involving C-suite executives or business owners. Without proper management, businesses can face compliance issues, penalties, and administrative nightmares. Here are some key areas that demand attention:

1. Employee Addresses and Tax Compliance

The first step in managing employment taxes is ensuring all employee addresses are accurate and that the correct taxes are applied. Many states have local taxes that can be unexpected. While Pennsylvania and Ohio are well-known for local taxes, locations like Auburn, AL, or St. Louis, MO, can catch businesses off guard. Most HRIS systems offer tax lookups by address, but no matter what payroll software is used, ensuring employees are allocated to the right tax jurisdictions is critical.

2. Employer Tax Portals: A Vital Oversight Tool

Employer tax portals play a crucial role in catching errors before they escalate. Best practice involves logging into each state’s tax portal quarterly to verify that filings and payments are processed correctly. This is also essential for keeping up with unemployment tax rate changes. Some states issue these notices at year-end, while others send them mid-year or sporadically due to legislative updates.

3. Reconciliations: Ensuring Accuracy

Most HRIS systems handle tax filings, but businesses must still closely monitor each payroll run for discrepancies. Conducting thorough quarterly reviews ensures that payments are being made correctly and that any tax fallouts are addressed promptly.

The Pitfalls of Poor Employment Tax Management

Failure to implement a structured employment tax strategy can lead to serious consequences. Here are some common pitfalls:

1. Portal and Employment Tax Security Issues

Many tax jurisdictions allow only one portal account per business. Losing access—whether due to an employee’s departure, a consultant setting it up under their credentials, or rushed account creation—can be a nightmare. Regaining access often requires mailed PINs, executive-level calls, and, in some states, notarized POAs with proof of ownership.

2. Business Moves and Acquisitions

Security measures like mailed PINs from the IRS and state agencies mean that if a business has moved or been acquired, crucial tax correspondence may never reach the right person. If no active portal is in place address changes often require executive involvement, POAs, notaries and other time-consuming security verifications.

3. Reactive Rather Than Proactive Notice Handling

Some states take years to issue notices for filing errors, incorrect payments, or shortfalls. By the time an employer receives a notice, extensive research and retroactive corrections may be required, including filing amendments or paying outstanding balances.

4. Lack of a Designated Tax Point Person

Many businesses assume their HRIS will handle employment taxes, leading to neglect in active oversight. Without a designated tax expert or a structured plan, businesses risk compliance failures and costly penalties.

Conclusion: A Call for Better Employment Tax Strategies

The rapid expansion into multiple states has made employment tax compliance more complex than ever. Employers must take a proactive approach—ensuring accurate address records, monitoring tax portals, reconciling payments, and securing portal access. Without a clear employment tax strategy, businesses can face significant financial and operational setbacks.

Reilen Payroll Consulting specializes in helping businesses navigate the complexities of multi-state employment taxes. From compliance strategies to hands-on support, we ensure your payroll and tax processes are streamlined and error-free. Contact us today to see how we can help your business stay compliant and stress-free.