Employers are expected to withhold state income tax from an employee's wages if that employee is subject to state income tax unless noted below. Each state has different tax rules regarding payroll withholding for out-of-state employees.Here's what to know about managing out-of-state employees. The assortment of state income tax nexus, withholding, and nonresident filing rules can create headaches for both employers and employees. If you were hired while living outside Illinois, then, you will have withholding in both Illinois and your prior state until or unless you ask to stop it. A state W-4 Form is a tax document that serves as a guide for employers to withhold a specific amount on each paycheck to go towards state taxes. An individual who moves their domicile (legal residence) into or out of North Carolina during the tax year is a part-year resident. Use Form I9 to verify the identity and employment authorization of individuals hired for employment in the United States. (i) If an employee claims total exemption from withholding, the employee's wages shall be exempt from withholding of North. Implications for employees.