The What and How of State and County Withholding Tax
June 11, 2007
Today’s installment of our summer business-tax series is the counterpart to the May 29 blog about sales tax. Joetta and Jay, our fearless business-tax duo, have some old and some brand-spanking-new information about withholding tax to share with you. So find a comfortable chair, get a tall, cold drink (non-alcoholic, of course), and sharpen your pencils, because it’s withholding time!
Now that you’ve started your own business it’s time to concentrate on those things that will help you make enough money so you can retire both rich and early. And to do that, you’ll likely need people, otherwise known in the business world as employees. Once you start paying them salaries to realize your business dreams, you’ll have to withhold some from their salaries to pay Uncle Sam. The amount you hold back is known as withholding tax to pay employees’ federal, state and county income taxes.
If your employee is subject to federal withholding tax, then your employee also will be subject to Indiana state and county withholding tax. As an employer, you’re what’s known as the “withholding agent.”
And here’s what you really need to know about being a withholding agent. When you apply with us for a withholding tax account (via Form BT-1), we’ll send you a packet of information that has your tax forms in it. The forms (WH-1’s), which we government-types call vouchers, are simple. The voucher should have the due date on it (make sure to get it postmarked by that date to avoid penalties). The voucher will also tell you how often you need to file: monthly, quarterly, or annually. That lets you know just how often you need to mark your calendar to remind you to file your returns.
But you don’t get all the paperwork fun. That new employee you just hired will likely spend half his first day filling out paperwork, one piece of which will be a form known as the WH-4. The WH-4, once completed, will tell you how many exemptions he will be claiming, along with the name of the Indiana county he lived and worked in on January 1 of the tax year. You’ll then use the information found in Departmental Notice 1 to figure how much state and county tax needs to be withheld.
And let us tell you a little about Departmental Notice 1 and what’s new about it. Normally, county tax rates, when changed, become effective for withholding tax purposes on July 1 of each year. This year, due to legislative changes, the county tax rates will be updated as usual for July 1, but will be revised again for October 1. Going forward, the NEW change date will be permanently moved to
October 1 of each year. After this year the revised Departmental Notice 1, which is usually published in June, will be made available in September.
You can also visit these links directly to get more specific information:
- A calendar of forms and their filing deadlines—very helpful—
- INTax…our online business-tax filing tool. It’s free and user-friendly. We’ll be taking a tour of this site in a future installment of Tax Talk, but you can go ahead and check it out now at https://www.intax.in.gov/Web/default.aspx
Once you register with us for withholding tax, you’ll have to file a return (voucher) even if you don’t have any employees yet. Simply enter zeros on the return, sign it, date it, and send it in. This keeps you in good standing and let’s us know what’s going on.
One more thing … once you become rich and retire, make sure to let us know about any changes to your withholding account (such as you aren’t the employer anymore). The last thing you want to get is mail from us when you have a threesome waiting for you on the golf course, or when you’re about to make that final solo flight to get your pilot’s license.
- What does the state require to start a business?
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- Who can I contact about Indiana income tax?
- Where do I go for tax forms?
- Where is my state tax refund?
- I filed my Indiana tax return. I owe, but am unable to pay at this time. What sh...
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- Know when I will receive my tax refund.
- File a part-year Indiana tax return.
- File my taxes as an Indiana resident while I am in the military, but my spouse is not an Indiana resident.
- Take the renter's deduction.
- Pay my tax bill in installments.
- Claim a gambling loss on my Indiana return.
- Have more time to file my taxes and I think I will owe the Department.
Welcome to Tax Talk, hosted by DiB (dye-bee), the Indiana Department of Revenue’s individual income tax guru. DiB, who says she’s been with the Department “since the earth cooled” (though it’s actually 30+ years), writes and develops Indiana’s individual income-tax instruction booklets and forms. DiB created Tax Talk to address Indiana individual income tax questions and issues during the filing season. If you would like to submit a question or topic suggestions, please send those to DiB at feedback@dor.in.gov
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