All states require state income tax withholding, with the
exceptions of Alaska, Connecticut, Florida, Nevada, New Hampshire, South Dakota,
Tennessee, Texas, Washington, and Wyoming. Those states requiring a business to
withhold state income taxes from its employees all have different methods and
forms for doing so, which requires a detailed knowledge of the withholding and
remittance requirements of each state. If an organization calculates its own
payroll, then it will likely be sent this information on a regular basis through
the mail by each state government with which it has registered. For most states,
this information is also accessible via their official web sites. A much easier
approach, however, is to outsource the payroll processing function, which makes
the payroll supplier responsible for making the correct withholdings and
remittances (if the employer chooses this service).
Unlike the federal government, which allows most payroll tax
payments to be remitted with a single document, states may require employers to
use a variety of forms, perhaps one for income taxes, another for unemployment
insurance, and another for disability insurance (though this is required only by
a small number of states). Given the amount of paperwork involved, a company that remits its own state taxes
should construct a calendar of remittances, which the payroll manager can use to
ensure that payments are always made, thereby avoiding late-payment penalties
and interest charges.
If an employer has nonresident employees, and the state in
which it does business has an income tax, the employer will usually withhold
income for each employee's state of residence. Alternatively, an employer can
withhold income on behalf of the state in which it does business and let the
employee claim a credit on his or her state tax return to avoid double taxation.
The ability to do this will vary by individual state law.