CPP Multi-State Payroll Compliance 4 — Questions and Answers
Question 1: An employee moves from Ohio to Florida mid-year. Ohio has an income tax; Florida does not. How should the employer handle year-end W-2 reporting?
- Report all wages in Box 16 under Ohio
- Report only wages earned while the employee worked in Ohio in Box 16 under Ohio; no state wages for Florida (Correct answer)
- Issue two separate W-2 forms, one for each state
- Report all wages to Florida because it was the employee's year-end domicile
Correct answer: Report only wages earned while the employee worked in Ohio in Box 16 under Ohio; no state wages for Florida
Only wages attributable to the period the employee worked in Ohio are reported in Box 16 as Ohio wages; Florida has no income tax so no state wages need to be reported for that state.
Question 2: What is an employer's obligation when a remote employee establishes nexus in a new state where the employer has not previously filed payroll taxes?
- Continue withholding for the prior state until year-end
- Register with the new state's tax and unemployment agencies before or promptly after the nexus is established (Correct answer)
- File only after the employee has worked there for one full calendar year
- Request a federal exemption from the new state's requirements
Correct answer: Register with the new state's tax and unemployment agencies before or promptly after the nexus is established
An employer generally must register with the state's department of revenue and labor agency and begin withholding as soon as it has an employee creating nexus in a new state.
Question 3: Which of the following best describes 'apportionment' in the context of multi-state payroll for an executive who earns a large base salary?
- Splitting FICA taxes equally among states
- Allocating the executive's total compensation among states based on days worked or services performed in each state (Correct answer)
- Paying the executive's salary from the state with the lowest tax rate
- Deferring the executive's income to a single tax year for simplicity
Correct answer: Allocating the executive's total compensation among states based on days worked or services performed in each state
Apportionment divides an executive's total compensation—including bonuses and equity—across states proportionally based on where services were rendered.
Question 4: A stock option is granted to an employee in State X who later moves to State Y before the option vests. Which state taxes the gain at vest?
- Only State Y, because the employee resides there at vest
- Only State X, because the grant occurred there
- Both states may claim taxation, typically prorated based on the ratio of service days in each state during the vesting period (Correct answer)
- Neither state; stock options are federally exempt at vest
Correct answer: Both states may claim taxation, typically prorated based on the ratio of service days in each state during the vesting period
Most states source stock option income based on where services were performed during the vesting period, so both states may have a claim prorated by service days.
Question 5: Which of the following is a key reason an employer might fail the 'base of operations' factor in the FUTA multi-state SUI test?
- The employee has no permanent home office in any state
- The employee never returns to the employer's primary location to receive instructions or pick up work (Correct answer)
- The employer is headquartered outside the United States
- The employee earns less than the FUTA wage base in every state
Correct answer: The employee never returns to the employer's primary location to receive instructions or pick up work
The 'base of operations' factor requires a fixed location from which the employee starts work, receives instructions, or returns after trips; if none exists, this factor is not determinative.
Question 6: A company acquires a business in another state mid-year. What happens to the acquired company's FUTA and SUI wage bases for the employees it takes on?
- Wages reset to zero; successor must re-withhold from the beginning of the new employment
- If the acquisition qualifies as a successor employer, previously paid wages carry over and count toward the wage base for the calendar year (Correct answer)
- All FUTA and SUI taxes previously paid are refunded to the acquired company
- The IRS sets a new wage base specific to each acquisition
Correct answer: If the acquisition qualifies as a successor employer, previously paid wages carry over and count toward the wage base for the calendar year
In a qualifying successor employer situation, wages already paid by the predecessor in the same calendar year count toward FUTA and SUI wage bases, preventing double taxation on the same wages.
Question 7: Which state has a unique requirement that makes it a 'mandatory SUI' state, meaning employees who work even one day in that state can trigger SUI liability regardless of where they are localized?
- Texas
- Florida
- Nevada
- Minnesota (Correct answer)
Correct answer: Minnesota
Minnesota is known for a particularly aggressive SUI rule where working even briefly in the state can trigger SUI liability, requiring employers to carefully track days worked there.
CPP Multi-State Payroll Compliance 4
An employee moves from Ohio to Florida mid-year.
Ohio has an income tax; Florida does not.
How should the employer handle year-end W-2 reporting?