Should Trucking Companies Consider Courtesy Withholding for State Income Taxes?

If you run a trucking company, you already know payroll isn’t easy. One thing that makes it even harder is dealing with drivers who live in different states. A common question you might face is:

“Should we withhold state income taxes for a driver’s home state, even if our company is based somewhere else?”

This is called courtesy withholding, and while it might seem like a way to keep drivers happy, it often leads to more problems than it solves.

In this article, we’ll break down what courtesy withholding really is, why it causes issues for trucking companies, and what you should do instead.

Disclaimer: This article is for general information only. Make sure to talk to a tax professional or your lawyer before making any decisions to ensure you are following local laws.

What is Courtesy Withholding for Trucking Companies?

Courtesy withholding is when your company agrees to withhold state income taxes for an employee’s home state, even if your company isn’t located there.

It’s called “courtesy” withholding because it’s not something you’re legally required to do—you’re doing it as a favor to the employee. The goal is usually to make things easier for the driver, but that “courtesy” can come with complications for your business.

Here’s an example:

Your trucking company is based in Michigan, and your payroll system is set up to withhold Michigan state taxes. But now, a new driver from Indiana asks you to take out Indiana taxes instead.

You want to keep your drivers happy, so you say yes. That’s courtesy withholding.

Why Withholding for One Driver Can Create a Chain Reaction

Saying yes to one driver might seem harmless. But that one decision can quickly turn into a payroll headache.

Let’s say you register your company to withhold taxes in Indiana. Then, another driver from Kentucky hears about it and asks for the same thing. Then someone from Ohio wants it, too.

Now you’re withholding taxes in multiple states—each with its own:

What started as a small favor is now a time-consuming mess. You’re dealing with tax agencies from different states, all wanting something different from your company.

The Real Risks of Courtesy Withholding

Doing something helpful for one driver can accidentally open the door to some serious risks:

You’ll Have More Eyes on Your Business

When you register to pay taxes in another state, you show up on their radar. Even if you’re doing everything right, that state may start looking into your business. More states = more audits.

Your Payroll Process Becomes a Mess

Each state has its own tax rules. If you miss a step or forget a deadline, you could face:

You Might Forget to File for Ex-Employees

If a driver leaves and you forget to stop their state withholding or file a zero return, that state might send you fines for not filing—even if you had no employees there anymore.

Other Drivers Expect the Same

If you do this for one driver, others will want it too. Saying yes once can make it hard to say no later. Now you’re stuck making exceptions for everyone or risking unhappy drivers.

How to Legally Handle State Tax Withholding for Out-of-State Drivers

The best thing you can do is keep things simple and follow the law.

Only withhold state taxes in states where you have a physical presence, like:

If your company isn’t located in a state, you usually aren’t required to withhold income taxes for employees who live there.

Let’s go back to the example:

If you’re based in Michigan and you hire a driver from Indiana, you should still withhold Michigan state taxes, not Indiana’s.

This isn’t about being unfair—it’s about staying compliant with the law and keeping payroll manageable.

How Drivers Can Handle Taxes If You Don’t Withhold for Their State

Drivers who live in another state may still owe taxes to their home state, even if you’re not withholding it.

That’s why it’s important to recommend they talk to a tax expert. A tax professional can help them:

Helping drivers find the right resources is better than trying to handle their state taxes for them.

Keep Payroll Simple, Legal, and Stress-Free

Payroll is hard enough already. When you start adding multiple state tax systems, the risks go way up.

Here’s why not doing courtesy withholding is the better choice:

You avoid audits from other state tax departments
You cut down on filing errors and late fees
You spend less time on tax paperwork
You make payroll easier to manage
You give all drivers the same fair policy

It’s not about saying “no” to your drivers. It’s about doing what’s best for your company—and keeping things fair, legal, and organized.

Final Thoughts: Why Courtesy Withholding Isn’t Worth the Risk

Courtesy withholding may sound helpful, but it often causes more problems than it solves.

If you’ve been confused about which state’s taxes to withhold for your drivers, you’re not alone. Many trucking companies face this issue.

Create a clear company policy that says you only withhold taxes in the states where your company has a physical presence. Encourage your drivers to speak with a tax pro about their own state tax needs.

At Superior Trucking Payroll Service, we help trucking companies handle payroll the right way—no guesswork, no stress. If you’re ready to make payroll simple, legal, and driver-friendly, we’re here to help.

Written by Harley Houlden

Harley joined Superior Trucking Payroll Service (STPS) in early 2019. With nine years of customer service experience, she truly understands what it takes to make our clients happy. She loves working at STPS because of the family-like atmosphere. Harley’s favorite place to be is Traverse City, Michigan or anywhere that has hippos.