Did you know that depending on the state that your employees work in, they may actually have to complete a state withholding form, in addition to completing the federal Form W-4 to withhold federal taxes from their paychecks.
If you have employees that work in a state that has income tax, the state W-4 form is a tax document that serves as a guide for employers to withhold a specific amount on each employee's paycheck to go towards state taxes. Depending on the state, there could be different state agencies/departments that handle these forms.
Examples of how they differ:
| State | Agency |
|---|---|
| Alabama | Department of Revenue | Arkansas | Department of Finance and Administration |
| California | Employment Development Department, Franchise Tax Board |
| Idaho | State Tax Commission |
If an employee works in a state with no state income tax, they must complete the required federal Form W-4.
States can use their own W-4 form or the federal Form W-4. Is there a difference between state W-4s and federal Form W-4? Yes - every employee in the USA. will fill out a federal Form W-4, because that is where they work and reside, within the USA. But not every employee will fill out a state W-4, and that’s because an employee's state tax withholdings and form requirements will vary depending on the state that they reside in.
The following states have separate state tax withholding forms:
| Alabama | Arizona | Arkansas |
| California | Connecticut | District of Columbia |
| Georgia | Hawaii | Illinois |
| Indiana | Iowa | Kansas |
| Kentucky | Louisiana | Maine |
| Maryland | Massachusetts | Michigan |
| Mississippi | Missouri | New Jersey |
| New York | North Carolina | Ohio |
| Oklahoma | Oregon | Pennsylvania |
| Rhode Island | Vermont | Virginia |
| West Virginia | Wisconsin |
Every employee should complete a W-4 form each year and provide it to their employers, so the proper amount of state taxes are withheld. Keep in mind that each state has their own number convention for these forms, along with the information that is required to be completed by the employee.
This would be states that have NO income tax and don’t require state W-4 forms:
| Alaska | Florida | Nevada |
| New Hampshire | South Dakota | Tennessee |
| Texas | Washington | Wyoming |
The remaining states listed use the federal Form W-4. There are specific instructions on using the federal Form W-4 for state withholding (another thing to keep track of).
There are also local and city withholding tax form requirements on top of federal and state.
Example: If you live or work in a taxing city in Michigan, you are required to complete and submit the appropriate City Tax Withholding Form. There are a total of 26 cities in Michigan with this requirement.
If your company and employees are in multiple states, this task of keeping up with the latest form updates, nexus, and reciprocity can be a daunting-exhausting experience.
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