I'm super confused about seasonal employees and W2s. Please help!

Hi there, @NorthernEpics.

When setting up your employees, your company's legal business address is the default work location. However, we have a reciprocity agreement between states, which means that the employee only needs to pay taxes in one of the states or the state where they live.

In your case, since the income reflects your employee’s home address which is in California, we can apply the reciprocity agreement. Since you have employees residing in a state different from the state where your company is located, you will need to set up state withholding for at least one of the states, possibly both. Here’s an article for reference: Which states have reciprocal agreements?

Any employee residing in a different state from your business should give you a certificate of non-residence for the state where your business is located. Locate this form by following the steps below:

1. Go to the Taxes menu and select Payroll Tax.
2. From there, click the Resources at the right corner of the page.
3. Choose the Employee’s tab, and navigate to the form W-4.

Please take note of the following: 

• For the employee's residence state, enter the appropriate filing status and allowances from the employee's W-4 on the employee's through the steps above.
• Choose Do Not Withhold as the state filing status for the work-location state. (If you don't see the work location state, don't worry. We'll make sure no taxes are withheld).

Keep guided in submitting your W-2 forms on time to the Federal and state agencies through QuickBooks Online Payroll. Doing so will keep you compliant with the IRS and avoid any possible penalties. Also, you can keep a copy by printing it if you need to send a copy to your employees or for your records.

You can always post if you have more concerns about filing taxes or any QuickBooks-related matters. I’m just a post away, and take care!

First off, thank you so much for replying to me. I'm kind of scrambling here, and you taking the time out of your day to help me is absolutely huge. With that said...

This isn't making much sense to me. Our legal business address is Alaska, as is his work location, so wouldn't all of the income be...in Alaska? Why is the income appearing as having been in California?

I feel like I don't have a good grasp on this reciprocity agreement. I found my employee's W-4, but I don't see anything about a certificate of non-residence, and don't even know what that is. He's a resident of California, but was working in Alaska for the summer.

Thank you for reaching out to the Community. Let me provide you with some insight into how the reconciliation works.

This shift in work culture has certain implications for the payroll taxes of both employers and employees. The taxes that you and your employees are liable to pay depend on the state in which they live and work. These taxes may include State Withholding, State Unemployment Insurance, local taxes, State Disability Insurance, or Paid Family Leave. If you have hired an employee who lives and works in a new state, it is important to add the new state to your payroll product. Here are the steps you should follow to get it done.

Make sure to check the work location of the employee in Alaska and then for the employee's state to be tracked under Alaska only. Just tick the tax-exempt box for California.

Step 1: Find out which state taxes apply and get the info

Figuring out the correct state and local taxes can get tricky. Every situation and state is different. It’s best to contact the state withholding and unemployment insurance agencies, and any applicable local tax agencies where your employees live and work. The agencies can tell you which taxes apply to your situation. And they’ll help you register for the account numbers you’ll need to pay the taxes and file the forms.  

Step 2: Set up or make changes to your employees 

Once you determine the state or local taxes to pay and file, you can add your new employee. Or make changes to an existing employee who moved to a new state.

1. Go to Payroll, then Employees.
2. If your employee is new, select Add an employee. If an existing employee moved to a new state, select your employee from the list. 
3. From Employment details, select Start or Edit. Select or add the work location where you’re required to pay State Unemployment Insurance. If you have remote employees, the work location may be different than where your employee physically works. Then select Save.
4. From Tax withholding, select Edit. Go to the State withholding section. If you see two states:

• If you don’t need to collect state withholding in one state: in the Filing Status ▼ dropdown, select Do not withhold (exempt). 
• If there’s a reciprocity agreement between the two states, select if your employee gave you a Certificate of Nonresidence form. The form determines which State Withholding is collected. 

1. If you see a Local Taxes or Other Taxes section, select the applicable taxes and enter the rates. 
2. If you or your employee are exempt from any taxes (not common), from Tax Exemptions, select the applicable tax(es). 
3. When finished, select Save.

Step 3: Set up your new state taxes.

It’s important to complete the state tax setup if you want us to make your tax payments and file your forms electronically.

Step 4: Sign new state authorization forms

Depending on your payroll service, you may need to sign authorization forms so we can pay your state taxes and file your forms.

You’ll see a To Do in your Payroll Overview to e-sign the authorization forms.

For more detailed information you can check out this article: Set up Employees and payroll taxes in a new state

I'm also adding these helpful modules you can browse for future references:

• Create and run your payroll
• Set up and manage payroll schedules

Let me know if you need further assistance or clarification about your employee's income appearing as having been in California in QuickBooks Online. I'll be here as soon as I can. Have a great day! 

By the way you worded your first paragraph, I'm not sure if you understand. I'm going to try to be as clear as possible so it doesn't have to keep being an issue. Jordan (my employee) does not live and work in California (at least not for us) he lives there, but ALL THE WORK HE DID was in Alaska. He did not do any work for us in California at all. He only lives there. 

With that said, I tried to follow the steps you put forth, but it didn't work. I got as far as the State Withholdings section. Under State Withholdings, there is only one state - CA. Obviously that makes no sense, but I don't see a place to change it either. Any idea what might be going wrong?

I understand the importance of ensuring that the employee's work location in Alaska is accurately reflected in the payroll system, NorthernEpics. 

The possibility that there's only one state showing on the State holding section is that you did not add a work location for Alaska. 

We can review the employee's profile in your payroll settings to ensure that the work location and state withholdings are accurately reflected. We can select  Do not withhold (exempt)  if you don’t collect state withholding in CA. Then, for Alaska, we can select withhold from the Filing status dropdown.

I've added a screenshot for your reference. 

I've added this article, in case you want to change your business's primary location, you can begin changing your employees' address to the new location and their tax information. This is to keep your records up-to-date and accurate. For more details, please review this article: Changing a primary state.

I've got your back if you have more questions about managing your payroll in QBO. Just add your reply in the comment section so I can assist you further. Have a good one.

We have not changed our primary location. We do and always have operated only in Alaska. I don't see how that is at all related to what I was asking. Per the last answer, I tried to follow the steps they suggested but ran into a road block at State Withholdings. It only listed CA there. No mention of AK. Can you help me with that?

I understand your confusion about the employees and W2s, @NorthernEpics.

Allow me to jump in and point you to the correct support you need. 

It appears that you've noticed CA as the company location, which may have defaulted to the work location. You can proceed with the steps provided by my colleague 
LeizylM, where you input the company and work location, and make sure to select the accurate address for withholding.

As this pertains to transactions from 2023 and no information can be edited or deleted, it's best to contact our payroll support. This way, they can make some changes or payroll corrections to your account. 

Here's how: 

1. In your QBO account, select Help (?).
2. Choose the Search tab.
3. At the bottom of your screen, click Contact Us.
4. Type your concern. Then click Continue.
5. You may choose Callback, Appointment, or Chat as your way to connect with us.
6. Kindly fill out the provided field such as your First name, Last name, Email address, and Phone number.
7. Depending on what you choose as your way to connect with us, click Callback, Schedule an appointment, or Chat. 

You can check this article for more information about the different types of support we offer and their availability: QuickBooks Online Support.

Please check this article how QuickBooks Online populates the boxes on the IRS Form W-2: W2 form boxes explained.

Let me know if you need further help with your Form W-2. I'm always here to assist. Have a wonderful day!