Employers who have employees working in a large number of states have to manage a number of complexities to ensure tax withholding compliance.
Employee Tax Withholding Allowances
Over 40 states in the U.S. collect state income tax directly from workers’ paychecks. The Form W-4, used to determine the amount of tax to withhold, underwent significant changes in 2020, leading many states to develop their own forms or adjust their tax tables. Not all workers need to submit a new state form, but it’s recommended to check the state tax agency website for more information.
Employer Responsibilities
Employers must maintain federal and state tax forms for each worker. If a worker doesn’t provide a complete, signed federal Form W-4, the employer must withhold federal income tax as if the worker were single or married filing separately. Most states follow the same rule for state income tax.
Exemptions
Some workers may claim exemption from federal and state income tax withholding. Each state has its own rules about exemption from state income tax and the form a worker must file to support the exemption.
Nonresident Military Spouses
The federal Military Spouses Residency Relief Act (MSRRA) allows a servicemember’s spouse to designate a different state as their domicile and pay taxes to that state. The Veterans Benefits and Transitions Act of 2018 (VBTA) modified the law to allow spouses of servicemembers to choose to use the servicemember’s domicile for state taxation, irrespective of the marriage date.
Recordkeeping Requirements
Most state income tax withholding laws have similar recordkeeping requirements to those of the IRS for federal income tax withholding. These requirements typically include keeping track of returns and statements filed with the state revenue agency, dates and amounts of tax deposits, the total number of employees subject to withholding, and more.
Compliance in these areas is crucial to avoid potential penalties and ensure accurate tax withholding. Employers should stay updated on changes to tax laws and forms, maintain thorough records, and ensure they’re withholding the correct amount of tax for each employee. It’s also important to respect exemptions and understand the specific rules for nonresident military spouses. By doing so, employers can ensure they’re meeting their legal obligations and providing accurate information to their employees.
Here are some recent legislative updates regarding tax withholding that employers should be informed about.
Updates effective 7/1/2024
Georgia G-4 Form Update: The state of Georgia has released an updated version of the Georgia G-4 form. The update specifically affects Line H, where the value has been increased from $3,000 to $4,000. This change is effective from July 1, 2024. For more details, please refer to the official form.
Addition of Blanchester Village, Ohio: Effective from July 1, 2024, Blanchester Village in Ohio has been added. For more information about this update, please visit the official page.
Addition of College Corner Village, Ohio: College Corner Village in Ohio has been added effective from July 1, 2024. More details can be found on the official page.
Addition of Glenmont Village, Ohio: Glenmont Village in Ohio has been added effective from July 1, 2024. For more information, please visit the official page.
Addition of Holmesville Village, Ohio: Holmesville Village in Ohio has been added effective from July 1, 2024. More details can be found on the official page.
Vermont Child Care Contribution Tax: The state of Vermont has added the Child Care Contribution tax effective from July 1, 2024. For more information about this new tax, please refer to the official document.
Please note that it’s always a good idea to consult with a tax professional or the respective tax authorities for the most accurate and up-to-date information.