Unless you live and work in one of the following nine states that do not tax wages, you are required to withhold state income tax on wages paid to your employees: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. While this may sound simple enough, there are a number of considerations that need to be made, and we will go over them here, including the COVID-19 wrench in the machine.
First up is the form itself. There are a few states that did not adopt their own state withholding tax form, so here is what is used in each case. For all other states, a complete list (and links!), to each state form can be found at the end of this article.
• Colorado – State withholding is based on information found on the Federal W-4 Form, but they have provided Worksheet DR 1098.
• New Mexico – State withholding is based on information found on the Federal W-4 Form, but if an employee wants to make a change to only their state withholding, they can write “For New Mexico Withholding Tax Only” across the top of the form.
• North Dakota – State withholding is based on information found on the Federal W-4 Form.
• Pennsylvania – Everyone pays the same rate, so no form is necessary.
• Utah – State withholding is based on information found on the Federal W-4 Form.
Employee Fails to Submit Withholding Form
Now, what happens if an employee fails to complete a form upon hire? How much do you withhold? We know that if the employee fails to complete the Federal W-4 Form, we withhold Federal Income Tax as if they are Single with no allowances or reductions. Here is what to do for each state:
• Alabama, California, Colorado, Delaware, Hawaii, Idaho, Kansas, Maine, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, and Utah – These states follow the same rule as Federal.
• D.C., Illinois, Indiana, Iowa, Kentucky, Michigan, Mississippi, Ohio, Puerto Rico, South Carolina, and Virginia – These states say to withhold as if zero allowances were claimed.
• Arizona – Withhold at 2.7% of gross taxable wages.
• Arkansas – Withhold as if zero exemptions or dependents were claimed, or use Federal Form W-4.
• Connecticut – Withhold at the highest marginal tax rate (6.99%) without allowance for exemption.
• Georgia – Withhold using a single filing status with zero allowances claimed, or use Federal Form W-4.
• Louisiana – Withhold as if zero exemptions or credits for dependents were claimed.
• Maryland – Withhold as if one exemption was claimed.
• Massachusetts, New Jersey, New York, West Virginia, and Wisconsin – Withhold based on Federal Form W-4.
• Vermont – Withhold based on Federal Form W-4, and if the Federal Form W-4 indicates an additional amount of Federal withholding for each pay period, the Vermont withholding should be increased by 24% of the extra federal withholding.
If your employee lives and works in the same state, then simply withholding the income tax based on their form’s elections should be easy enough. Special considerations arise when the employee lives and works in two different states. Do you withhold taxes in the state they live in, the state they work in, both, neither, oh my!? There are thousands of possible live/work combinations if you account for long commutes, for example, Georgia to Alaska, so we will concentrate on some of the shorter distances. In 2015 the U.S. Supreme Court ruled against double taxation in Comptroller of the Treasury of Maryland v. Wynne, stating that two or more states are no longer permitted to tax the same earnings, but filing a return to each state is most likely necessary.
Some states that share borders understand this concept and have Reciprocal Agreements (aka Reciprocity). This is where a state may forgo any income tax withheld on wages earned in their state if the employee lives and is taxed in a neighboring state. Listed below are 17 states where a non-resident worker who lives in a reciprocal state does not have to have taxes withheld in the state in which they are working. In many cases, the employee, rather than submitting a withholding form to the employer, will submit an exemption form. State reciprocity agreements can and do change on a regular basis, so here it is as it stands today. Listed below are worked-in states, followed by the lived-in state, and the form the employee will submit to their employer.
- Arizona – California, Indiana, Oregon, and Virginia. – Form WEC
- D.C. – All other states (although not all states have a reciprocity with D.C. as you will find below.) – Form D-4A.
- Illinois – Iowa, Kentucky, Michigan, or Wisconsin. – Form IL-W-5-NR
- Indiana – Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin. – Form WH-47
- Iowa – Illinois. – Form 44-016
- Kentucky – Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia, or Wisconsin. Residents of Virginia must commute daily to qualify, and residents of Ohio cannot be shareholders of 20% or more in an S chapter corporation. – Form 42A809
- Maryland – D.C., Pennsylvania, Virginia, or West Virginia. – Form MW507
- Michigan – Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin. – Form MI-W4
- Minnesota – Michigan or North Dakota. – Form MWR
- Montana – North Dakota. – Form MW-4
- New Jersey – Pennsylvania. This is one of those off again/on again relationships that is currently on. – Form NJ-165
- North Dakota – Minnesota or Montana. – Form NDW-R
- Ohio – Indiana, Kentucky, Michigan, Pennsylvania, or West Virginia. – Form IT-4NR
- Pennsylvania – Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia. – Form REV-419
- Virginia – D.C., Kentucky, Maryland, Pennsylvania, and West Virginia. – Form VA-4
- West Virginia – Kentucky, Maryland, Ohio, Pennsylvania, or Virginia. – Form WV/IT-104R
- Wisconsin – Illinois, Indiana, Kentucky, or Michigan. – Form W-220
If you do not live/work in states that have a reciprocity agreement, then the employee may just have to file multiple state returns and wait for a refund for the taxes unnecessarily withheld.
Employees Working From Home
With the new normal of many employees working from home, this brings a somewhat new consideration. In the old days of 2019 and before, if an employer did not have a business presence in a state where an employee lived, but did not work, the employer did not need to open a state withholding tax account with the employee’s lived-in state. For example, if a company is solely based in Jacksonville, Florida and their employee commutes from a home located in Georgia, the employer is not required to withhold Georgia state withholding tax from the employee, reason being that the state of Georgia cannot cross state lines to enforce collection. Instead, the employer could get by with just withholding where the company was based and the employee performed the work. In this example, no tax is withheld, as Florida does not have state income tax. Now, does an employee who works from home in that other state, in this case Georgia, qualify the company to open a state account and withhold taxes? Some states have issued guidance on teleworking employees in light of COVID-19. The American Institute of CPAs (AICPA) has even issued this document on the topic, and here is a summary:
- 16 states provide that the presence of an employee working in a state due to shelter-in-place restrictions will not create nexus for tax purposes in that state: AL , CA, DC, GA , IA , IN, MA, MD, MN, MS , ND , NJ , OR, PA , RI , SC (through 2020 ), City of Philadelphia
- 13 states are providing a temporary safe harbor or waiver for state withholdings and tax liability for remote work in different states during the pandemic: AL, GA , IL , IN , MA , MD , MN, MS , NE, NJ, PA, RI, and SC (through 2020), and City of St. Louis
- 6 states are providing that they will NOT use someone’s relocation during the pandemic as the basis for exceeding the protections provided by Public Law 86 -272 for the employer of the temporary relocated employee: CA, GA, IA, IN, MA, RI
Complete List of State Withholding Forms
Here is a list of all states and their corresponding withholding tax form. These links were all active at the time of this article, so it is possible a state has updated their website since. Please comment below if you have found a link to be invalid.
- Alabama – A-4
- Arizona – A-4
- Arkansas – AR4EC
- California – DE-4
- Connecticut CT-W4
- Delaware – DE-W4
- D.C. – D-4
- Georgia – G-4
- Hawaii – HW-4
- Idaho – ID W-4
- Illinois – IL-W-4
- Indiana – WH-4
- Iowa – IA W-4
- Kansas – K-4
- Kentucky – K-4
- Louisiana – L-4
- Maine – W-4ME
- Maryland – MW507
- Massachusetts – M-4
- Michigan – MI-W4
- Minnesota – W-4MN
- Mississippi – 89-350-15-8-1-000
- Missouri – MO W-4
- Montana – MW-4
- Nebraska – W-4N
- New Jersey – NJ-W4
- New York – IT-2104
- North Carolina – NC-4
- Ohio – IT-4
- Oklahoma – OK-W-4
- Oregon – OR-W-4
- Puerto Rico – 499 R-4.1
- Rhode Island – RI W-4
- South Carolina – SC W-4
- Vermont – W-4VT
- Virginia – VA-4
- West Virginia – WV/IT-104
- Wisconsin – WT-4
While I make every attempt to ensure the accuracy and reliability of the information provided in this article (did you count the 97 hyperlinks?) , the information is provided “as-is” without warranty of any kind. PayMaster, Inc and Romeo Chicco do not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional.