Is a Change in State Unemployment Reporting Necessary Due to COVID-19?

Employees in the United States are working from home to help limit the spread of COVID-19, sometimes creating situations where employees are now performing services in a different state.

Millions of employees across the United States are working from home to help limit the spread of COVID-19. Sometimes, such a change in policy has created situations where employees are now performing services in a different state. Therefore, employers should review their current payroll practices to help determine if a change in “work state” requires a change in reporting for state unemployment insurance (“SUI”) tax purposes. This is also referred to as a change in the “SUI sourcing” state.


All states have adopted a uniform set of statutory factors used to determine where SUI wages should be sourced.1  These “four factors” apply in the order of priority which, in most situations, should ultimately result in the sourcing of SUI wages to a single state, even when an employee works in multiple states during a calendar year.

  1. Localization of Services: The place in which the employee performs all services except for temporary, transitory or isolated situations.
  2. Base of Operations: The more or less permanent place from which the employee starts work and to which the individual customarily returns in order to perform functions necessary to exercise the individual’s trade or profession at some other place(s).
  3. Place of Direction and Control: The place at which the basic authority exists and from which the general control emanates rather than the place at which a manager directly supervises the performance of services (employees must perform some services in the state).
  4. Residence: The employee’s state of residency employees must perform (some services in the state).

In considering the above factors, physical distancing concerns have necessitated that many employees work from home over an extended period. However, most employees impacted by COVID-19 will be working from home temporarily. States often consider this incidental to an employee’s primary job location.


Don is a Telecom manager and a California resident. He maintains an office at his employer’s headquarters in Nevada. Due to the COVID-19 crisis, Don’s employer has instituted a policy that all employees must work from home for the next several months. Using the guidelines above, the employer should source Don’s wages for SUI tax purposes to Nevada, where his services are “localized.” While Don will be working from his home, it will be temporary. 

The recommended definition of “temporary” is approximately 12 months or less, as long as it is applied with some flexibility. That should take into consideration the various circumstances under which the work is performed¹.

The table below illustrates the potential tax overpayment associated with improperly sourcing Don’s SUI wages to two states: Nevada and California. Employers with similarly situated employees could see a magnified tax overpayment. 

A permanent change in an employee’s circumstances can trigger a change in the SUI sourcing state. This is an employee-by-employee determination. For instance, let’s say Don earns a promotion in July.  He will now work from home on a more permanent basis. Under the “localization of services” factor, the SUI sourcing state should immediately change from Nevada to California. Even with a mid-year change, states do not require employers to pay SUI tax on a multiple annual taxable wage basis. This would cause a duplication of tax.


When there is a permanent change in the SUI sourcing state, employers should consider out-of-state wage credits. These allow employers to apply taxable wages paid by the employer in the former sourcing state against the taxable wages paid in the new sourcing state. Continuing with the above example, Don’s employer should have a credit for taxable SUI wages paid in Nevada in calculating taxable wages in California. As illustrated below, if the employers does not properly apply the wage credits, then there is an overpayment in California tax. Again, employers with similarly situated employees could see a magnified tax overpayment.  


Working from home has become the norm for many employees throughout the United States. As employees begin to return to their more traditional places of employment, employers should review their SUI sourcing practices. If employers improperly source employee wages, they should file amended quarterly contribution and wage reports for a timely overpayment refund. In summary, employers may determine that working from home is advantageous and make the practice permanent. Should this happen, there may be a change to the SUI sourcing state for those employees impacted. If there has been a change to the SUI sourcing state, employers should cease reporting those impacted employees to the former primary job location state. Instead, they should begin reporting to the state of residency, making sure to take full advantage of out-of-state wage credits. To keep up-to-date, please visit our COVID-19 Resources page, which will be updated as new information becomes available. Or, reach out to your Equifax unemployment representative to help address the potential impacts of COVID-19 on your organization. Not a current client? Please feel free to contact our Employment Tax Consulting Group with any questions.  

Disclaimer: The information provided herein is subject to change. It is intended as general guidance and not intended to convey specific tax or legal advice. Before taking any actions, employers should consult with internal and/or external counsel.
Sources: 1. Pursuant to U.S. Department of Labor (DOL) Unemployment Insurance Program Letter (UIPL) 20-04.


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