Employee works in one state, but lives in another. Why is it necessary to open payroll tax accounts in state where employee lives?

Hi there, @nadneiny-gmail-c. I'm here to share with you some information about multi-state payroll situations in QuickBooks Online (QBO).

QBO is only dependent on state and IRS regulations. Usually, payroll taxes such as state and local withholdings are based on the employee's residence and work location. These taxes are calculated and reported differently depending on the laws of the particular states where your employee lives and works.

For the time being, I would recommend contacting your state agency so they can discuss this further for you. 

Some states have reciprocity agreements. To find out whether there is a reciprocity agreement between your employee's work location state and residence state, you can check out this article: About multistate employment payroll situations

In case you need help with updating a work location in QBO, you can open this link: Changing a primary state.

If you have any other payroll questions, please let me know by adding a comment below. I'm more than happy to help. Have a good one!

Thank you. Today I wrote to the Alabama Department of Labor about my UI tax and I got the answer:

Based on this information, the aforementioned account will be cancelled. Please be aware that Alabama is a liability state and you must first pay wages to employees physically working in the state before applying. Feel free to reapply once you have paid wages.

(I can attach email)

Also, today I called to Alabama Department of Revenue to ask about my Withholding tax and got approximately the same answer. If I don't earn any income in Alabama I have to close my Alabama Withholding tax account.

After all, I wrote to Customer Support and explained my situation, asking to remove Alabama from tax payments, reports, and an additional  $12 fee.  The customer assistant recommended me to change the employee's home address from AL  to IL. I did it, but it isn't correct. Automatically address was changed in W4 form, and I am afraid the wrong address can be in other tax reports.

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Based on your links I found that Alabama is one of states that do not withhold from residents who work in a state that has withholding.

(I attached the file, based on your link).

In conclusion, QB insists to have a withholding account in AL if it's only an employee's home address, but it shouldn't. Is it a bug? 

I really want that all will be correct

Thank you. 

Thank you,  I  appreciate your help.

I did all that was recommended, but Customer Service couldn't solve my issue online and asked me to wait for 48 hours.

I'll write when the problem is solved.

Thank you

I am surprised that QBO seems to have such a small understanding of how these multi state taxes work. I work on a boarder between two states and QBO was trying to tell me to look at the reciprocity agreement list that they have. The two states in question are not listed on there. I finally got to the point where we would either have to switch from QBO, apply for state withholding we did not need, or change the address of an employee to another state to get the filing correct.