The Employer’s Guide to State Income Tax Withholding

Starting a new business typically involves so many moving parts that it’s easy to miss one or two crucial details at the beginning. A failure to collect, report, or pay your employees’ state income tax withholding is one of these commonly overlooked items on the to-do list. Most everybody already knows about FICA payroll taxes (Social Security and Medicare), as well as federal income tax.

The story can be different when it comes to state rules and regulations, which typically aren’t as well known, especially if you’re new to the state. Maybe you’ve even registered your business with the state and mistakenly assumed that you could take care of the rest of the tax withholding and other filing forms at the end of the year. This may be the case for some employers in some states, but these are the exception, not the rule. Most employers need to start depositing their tax withholdings within a month if not a few days after making their first payroll payments.

State-by-State Information Guide

By far, the most common reason why a business wouldn’t need to worry about state income tax withholding is because their state doesn’t levy an income tax. New Hampshire and Tennessee only assess state income tax on dividends and investments, not wages. The following seven states have no income tax at all:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

You can find a more detailed, state-by-state income tax guide here.

Military SITW

The Defense Department has its own deal with state income tax withholding. First, it’s worth noting that military members who claim residency in Arkansas, Kentucky, Minnesota, New Mexico or Oklahoma may be exempt from some or all the state income tax that would otherwise be assessed to their military pay. Learn more about these exemptions here. Otherwise, the Defense Finance and Accounting Service (DFAS) will likely automatically deduct your state income tax liability. You may also be also to change your state tax withholding allowance by using myPay.

State Income Tax Withholding Software from AMS

More than 30 states have some kind of e-file option for businesses as well as e-file mandates–state-efile-mandates for businesses of certain sizes and classifications. Most of these e-file mandates also apply to quarterly employer filings. Here’s one of the great ways in which we can make your payroll system easier. AMS Payroll includes the ability to magnetically/electronically file your state forms. Need support for specialized state forms? Our Forms Filer Plus module includes many of these types of forms. See complete forms list. Whether you suspect you may already be behind in withholding, reporting, and depositing your employees’ state income taxes or you’re still setting up your initial payroll system, don’t miss the software solutions from AMS.

The combination of comprehensive and modular software features within a user-friendly platform makes us a great choice for business owners, tax preparers, bookkeepers, and other accounting professionals. Interested in seeing our payroll and form filing software do its thing? Download our free demo, and you’ll quickly understand how our software can make all your withholding, reporting, and filing requirements easier to handle.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.