A former employee moved before we paid severance. Can payroll use only the new address for state withholding?

A former employee's new address does not by itself determine the state sourcing or withholding of severance. States can consider where the underlying services were performed and the payment's nature. Resident-state taxation and credits may create an additional layer; federal wage treatment is a separate issue.

A specific business-owner situation

An employee worked in New York, moves elsewhere after termination and receives severance later. New York's nonresident sourcing rules illustrate why the payment cannot be assigned solely by the new mailing address.

Illustrative example, not a client result.

What to establish before filing

1. Identify every relevant work and residence state.
2. Read the severance agreement.
3. Check each state's sourcing and withholding guidance.

Which fact changes the answer?

Compensation for past services differs from some separately negotiated obligations. The agreement's substance and governing state rules can change the allocation.

A mistake to avoid

Do not copy one state's rule into another state's payroll setup.

Records that support the decision

• Historical work-location records.
• Move date.
• Severance terms and payment schedule.

The decision to document

Give payroll a state-specific written determination before processing the payment.

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Related questions

• We paid an employee during jury duty and kept the jury fees. How should payroll and the books reflect that?
• Can we give an employee a catalog selection instead of cash and treat it as a tax-free achievement award?

Sources and editorial context

• IRS Publication 15: employer tax guide
• IRS Publication 15-A: supplemental payroll rules
• IRS Publication 15-B: employee fringe benefits
• New York Tax Department: nonresident income and work sourcing

General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.