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Payroll in Practice: 9.26.2022

Sept. 26, 2022, 6:08 PM

Question: A trucking company that hauls agricultural supplies within North Carolina wants to hire South Carolina residents as drivers to perform similar services within South Carolina. The company is based in North Carolina and all current drivers are North Carolina residents. Will the South Carolina drivers be subject to state income tax withholding for South Carolina or North Carolina?

Answer: In general, employees are subject to income tax on wages earned in the states where they perform the services. Employees also must include those same wages on the tax return of the state where they live. The resident state usually provides a tax credit to avoid double taxation if the wages are also included in the taxable income of a nonresident state where the employee works.

State unemployment insurance is also a consideration. Generally, for a given employee, the employer is subject to SUI tax in only one state. In most cases, SUI coverage for an employee will be in the state where the employee’s work is “localized"— that is, where the employee provides all or most of their services.

This situation appears to involve intrastate trucking. The North Carolina drivers work only in North Carolina, and the South Carolina drivers will work only in South Carolina.

With intrastate trucking, the general rule applies and the state in which the employee works will be the state where the employer should withhold state income tax and pay SUI tax. This applies regardless of where the drivers reside or where the employer’s headquarters are located.

Some states require withholding for residents who work in other states if the state where the employee works withholds less tax than would be required for the state where the employee lives. However, neither North Carolina nor South Carolina require withholding on wages earned by a resident working in another state so long as the employer withholds tax for the other state.

Drivers who work in two or more states are involved in interstate trucking and the rules are different. The Amtrak Reauthorization and Improvement Act of 1990 prohibits states and localities, other than the state where the driver lives, from taxing the wages of a nonresident interstate truck driver.

For interstate truckers, the employer should withhold tax only for the employee’s state of residence. SUI coverage may be in the state where the employee performs most of the services, has a base of operation, or receives direction and control from the employer.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, N.C., and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at

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To contact the editor on this story: William Dunn in Washington at