What actually happens
An employee who lives in Maryland and performs work in Delaware sits in two tax systems at once. The residence state claims the right to tax all of a resident's income wherever earned; the work state claims the right to tax income sourced within its borders. Absent an agreement, both claims stand, and the conflict is resolved after the fact through a credit on the resident return rather than up front in payroll.
When Delaware withholding starts
Delaware requires withholding from the first dollar of in-state compensation. There is no de minimis day count to shelter a short assignment. Withholding required from the first dollar of Delaware-source wages. Delaware applies a convenience-of-the-employer test, so days worked remotely outside Delaware for a Delaware employer may still be sourced to Delaware unless the remote work is required by the employer.
The trap is that thresholds are usually retroactive to the first day once crossed. An employee who spends 40 days in a 30-day-threshold state does not owe tax on 10 days; they owe it on all 40, and the employer is the one who failed to withhold.
Delaware's convenience rule changes the answer for remote workers
Delaware applies a convenience-of-the-employer test. If the employee is on a Delaware payroll but works from Maryland because they prefer to, Delaware treats those days as Delaware-source income even though no work was physically performed there. Only genuine employer necessity moves the sourcing. How the test is applied.
Unemployment insurance goes to one state only
Income tax can be split between states. Unemployment insurance cannot. Under the localization test used by every state, an employee whose services are performed entirely in Delaware is covered by Delaware for unemployment purposes, and all wages are reported there — regardless of where they live, where you are headquartered, or which state's income tax you withhold. Delaware's 2026 taxable wage base is $14,500. The four-factor test in order.
Local taxes are a separate problem
Delaware: The City of Wilmington imposes a 1.25% earned income (wage) tax on residents and on nonresidents working in Wilmington, plus a separate employer head tax. Administered by the City of Wilmington, not the Delaware Division of Revenue.
Maryland: EVERY Maryland county and Baltimore City imposes a local income tax, collected together with the state tax through payroll withholding at combined state+local rates. Nonresidents working in Maryland who are not covered by reciprocity pay a special nonresident rate (state rate plus a statutory nonresident surcharge) in lieu of a county rate.
What you have to register for
| Obligation | State | Agency |
|---|---|---|
| Income tax withholding | Delaware | Delaware Division of Revenue |
| Unemployment insurance | Delaware | Delaware Department of Labor, Division of Unemployment Insurance |
| Paid family & medical leave | Delaware | Delaware Paid Leave contributions began January 1, 2025 and BENEFITS began January 1, 2026. The total rate is guaranteed at 0.80% of wages through 2026 (medical, parental and family caregiving components combined); employers may deduct up to 50% (0.40%) from employees. Employers with fewer than 10 employees are exempt; 10-24 employees are covered for parental leave only. |
Frequently asked
Do Delaware and Maryland have a reciprocal tax agreement?
No. There is no reciprocal agreement between Delaware and Maryland. Delaware taxes wages earned in the state by nonresidents, and Maryland taxes the same wages as resident income while allowing a credit for tax paid to Delaware.
Which state's income tax should be withheld?
Delaware, as the state where the work is performed. Maryland also taxes the income as a resident, but the employee claims a credit on the Maryland return for tax paid to Delaware.
Which state gets the unemployment insurance wages?
Delaware. Unemployment coverage is never split between states for a single job. The localization test assigns the whole job to the state where services are performed, which here is Delaware, regardless of residence or where the employer is headquartered.
How many days can an employee work in Delaware before withholding starts?
There is no safe harbour. Delaware requires nonresident withholding from the first dollar of compensation earned in the state, so even a single day of in-state work creates an obligation in principle.
Does Delaware's convenience-of-the-employer rule apply to a remote employee in Maryland?
It can. If the employee is assigned to a Delaware office but works from Maryland for their own convenience, Delaware sources those days to Delaware anyway. The rule is displaced only where the remote arrangement is a genuine necessity of the employer, which is a facts-and-circumstances test you should document contemporaneously.