State income tax (SIT), also called state withholding tax, is a tax that is withheld from your employee’s paycheck each pay period. The amount that is withheld varies based on how much your employee earns and their withholding elections.
Your payroll provider, once this tax is withheld, will be responsible for remitting the amounts withheld to the respective state agencies on a specific schedule that is determined by the state.
If for any reason too much is withheld for state income tax, impacted employees will receive funds back from the state when they file their taxes. Similarly, if not enough is withheld, employees will need to pay additional amounts when filing their taxes at the end of the year.
When an employee is hired in a state where you are not already registered, and the state has an applicable income tax withholding, you must register with the appropriate agency so the withheld amounts can be remitted.
A withholding tax takes a set amount of money out of an employee's paycheck and pays it to the government. The money taken is a credit against the employee's annual income tax. If too much money is withheld, an employee will receive a tax refund; if not enough is withheld, an employee will have an additional tax bill.
The following states do not have state withholding tax:
- Alaska (AK)
- Florida (FL)
- Nevada (NV)
- New Hampshire (NH)
- South Dakota (SD)
- Tennessee (TN)
- Texas (TX)
- Washington (WA)
- Wyoming (WY)
However, if an employee lives in a state with no withholding requirement, but commutes to a state with a requirement to withhold taxes, then taxes must be withheld for the state in which the employee works.