You owe taxes where you work. Where the job is done is where you are paid and where the tax liability is incurred.
A common arrangement these days is to allow employees to telecommute from home a few days a week. What if that employee lives in a different state than their company's place of business?
Generally, employers are required to withhold state income tax based on where the work is performed. This could also apply to employees that travel between different satellite offices as well. Although this sounds simple at the outset, there are different rules depending upon the state:
A reciprocity agreement is useful for helping tax payers only file returns in one state. Under the laws of other states, if you work in one state and live in another, you would end up paying tax to your employment state and filing a tax return. Then you would file a tax return for the state of your residence. After calculating your liability, you may be given a credit for taxes paid in another state, or you may not and you would end up being double taxed (depends on your state). If your employment and resident states have a reciprocal agreement, and your employer chooses to do this, you can have taxes withheld in your resident state only. You then only file a tax return in your home state.
My home state is California so lets take a look,
What are California's payroll taxes and who pays them?
Unemployment Insurance (UI) is paid by employers. UI provides temporary payments to individuals who are unemployed through no fault of their own.
Employment Training Tax (ETT) is paid by employers. ETT provides training funds to empower workers, promote business and boost California's economy.
State Disability Insurance (SDI) is deducted (withheld) from employees' wages. SDI provides temporary payments to workers who are unable to perform their usual work because of a pregnancy or a nonoccupational illness or injury (work-related disabilities are covered by workers' compensation). SDI also includes Paid Family Leave (PFL), which provides benefits to workers who need to care for a seriously ill family member or to bond with a new child. Beginning July 1, 2014, California workers may be eligible to receive PFL benefits when taking time off of work to care for a seriously ill parent-in-law, grandparent, grandchild, or sibling.
California Personal Income Tax (PIT) is withheld from employees' wages and credited toward the amount due for the employees' annual California state income tax.
Found on (http://www.taxes.ca.gov/Payroll_Tax/doingbus1.shtml)
Word of Advice: Employers with remote employees should rely on outside payroll companies or other tax experts due to the complexity of payroll withholding for remote staff. These experts can help employers not only do withholding correctly, but also determine how remote workers impact an employer’s state unemployment insurance. Employees who work remotely should consult their own tax advisor to hone their state income tax withholding.