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socrateaser
socrateaser, Lawyer
Category: Tax
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Experience:  Retired (mostly)
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I have a Limited Liability Company (sole member) in Pennsylvania.

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I have a Limited Liability Company (sole member) in Pennsylvania. Services offered are related to marketing consulting. Currently, I do not have any employees. I am looking to expand my business to perform work in the State of Maine as part of a future growth plan to ultimately relocate there. I have an individual who is willing to perform work for me in Maine and provide some administrative support. If I were to hire her as an employee, would I have to pay both Pennsylvania & Maine employment taxes? Also, do I need to pay taxes to the State of Maine for work conducted there?
Submitted: 1 year ago.
Category: Tax
Expert:  socrateaser replied 1 year ago.
Employment taxes are sourced to the place where services are performed, unless an employee is directed by the employer to work in a different jurisdiction from that of the employer. If your employee is sited in Maine and performs all work in Maine, then you are subject to Maine employment taxes, not Pennsylvania taxes.

To the extent that you generate revenue from Maine, your LLC would be subject to Maine income taxes, in proportion to your revenue from that state jurisdiction.

Hope this helps.

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Customer: replied 1 year ago.

"To Socrateaser"

 

Thank You for your prompt response. I am not sure that I fully understand the answer, though.

 

Situation:

Employer - located & registered in Pennyslvania, but clients may be located outside of Pennsylvania

Employee - located in Maine & working from a home office

Work Performed - Work by employee will be ultimately administrative in nature and not client facing to local clients unless I would be unavailable to be there. All work will be performed in the State of Maine, though it may not be for revenue generated in Maine.

 

Do I need to register with the State of Maine to pay employment taxes ONLY? Are there any changes to how I file my tax returns because of having out of state employees?

Expert:  socrateaser replied 1 year ago.

Do I need to register with the State of Maine to pay employment taxes ONLY?


A: From the way you describe the work being performed, you would only be obligated for Maine employment/payroll taxes (unemployment, workers comp, Maine state income tax withholding), because although you could be considered to be engaged in business in Maine, you are not generating any revenue from resources located in Maine.

 

Of course, you could get audited, and the tax authorities may challenge your assertions about the conduct of your business activities. But, based on how you've described things, you would only be liable for employment taxes and withholding for the employee located in Maine.


Are there any changes to how I file my tax returns because of having out of state employees?

 

A: I don't believe that under your proposed scenario, that you would have any filing obligations in Maine, because you are an single-member LLC. You would only owe taxes on your income generated from Maine, in which case you would have to file a Maine nonresident personal income tax return. Your payroll costs would all be deducted on your PA state tax return (and on your federal Form 1040, Schedule C).

 

Note: there are outsourcing companies throughout the USA that handle administrative employees and the related withholding issues, so that the employer only need cut a check to the outsourcing firm, and the firm handles the employee financial relationship. You may want to google around for "outsourcing" and see if it would be more cost effective to let some other business handle the employee issues, rather than spend time trying to handle payroll matters yourself. Payroll wage and hour issues can be very complicated, are prone to changes in law on a frequent basis, and the fines for messing up are onerous.

 

Hope this helps.

socrateaser, Lawyer
Category: Tax
Satisfied Customers: 33801
Experience: Retired (mostly)
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