What are Employer Responsibilities for Withholding and Paying State Income Tax?

Question: What are Employer Responsibilities for Withholding and Paying State Income Tax?

Unless your business location is in a state which has no state income tax, you have a responsibility as an employer to deduct income taxes from employees who work in your state and to submit these taxes to your state department of revenue. These responsibilities are the same as employer responsibilities for payroll taxes, including federal income taxes.

Answer:

Employer Responsibilities for State Income Tax
If you have employees working in a state which requires state income tax, you must:

• Obtain a federal Employer ID Number, if you haven't already done so.
  
• Obtain a state employer tax permit which in some states is the equivalent of a state EIN.
  
• Learn what wages are subject to state income tax withholding (may be different from federal regulations).
  
• Learn about any reciprocal agreements between states for income tax withholding and payment, for workers who live in one state and work in another.
  
• Obtain copies of the state withholding tables and calculate state withholding deductions from employee paychecks.
  
• Learn about your state's regulations for filing (submitting) income tax withholding.
  
• Deposit withholding amounts deducted from employees (most states use electronic filing for these deductions).
  
• File reports (annual or quarterly) on amounts withheld and amounts owed and paid (similar to IRS Form 941).

As you can see, the process for calculating, deducting, paying, and reporting on income taxes is similar to the process for federal income tax withholding.

State Tax Agencies
To find out about state income taxes, sales taxes, and other state taxes, go to your state's department of revenue and look for the business tax division.

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