State Withholding Tax: What It Means for Employers

What it means in practice

What state withholding prepays. Most states tax the income of individuals, and the tax an employer takes out of wages for a state is a prepayment of the employee's state personal income tax for the year. New York's Department of Taxation and Finance describes the duty as withholding and paying "personal income taxes" on wages, salaries, bonuses and commissions, and Pennsylvania's Department of Revenue calls it withholding of Pennsylvania personal income tax. The employee later files a state return that compares the year's tax with what was withheld; California's DE 4 tells employees to compare the state tax withheld with their estimated total annual tax. California's 2026 Employer's Guide (DE 44) adds that quarterly estimated payments to the Franchise Tax Board are meant for income not subject to withholding, and that estimates paid by an employee instead of proper withholding may result in an assessment against the employer.

The federal baseline. No federal law sets a single state withholding rule; each state that taxes wages writes its own. Federal federal income tax withholding runs on IRS rules and the Form W-4; state withholding runs alongside it on the state's forms, tables, accounts and calendar. The two meet on the Form W-2, described below; the IRS links each state's own site from its State government websites page. For the federal tax itself, see federal income tax.

States with no income tax on wages. No single official list could be read for this entry, so these are examples confirmed on each state's own pages. The Alaska Department of Revenue says Alaska "currently does not have an individual income tax, therefore no employee withholding for state income tax is required." The Florida Department of Revenue says Florida "does not impose a personal income tax." Nevada's Department of Taxation says residents do not pay state tax on salaries, wages or similar compensation. South Dakota's Department of Revenue says the state does not impose a state income tax. Tennessee's Hall income tax manual says that tax never applied to salaries, wages and commissions and was fully repealed for tax years beginning on or after January 1, 2021. The Texas Comptroller says Texas has no state income tax. Wyoming's state website says Wyoming has no individual or corporate income tax. Washington's Department of Revenue says the state does not currently have an individual income tax, but that a 9.9% tax on individuals and joint filers with adjusted gross income over $1 million begins January 1, 2028, with first returns due in April 2029. New Hampshire's revenue site could not be read, so it is not listed here.

State certificates versus Form W-4. States that use allowances need their own certificate. California's DE 4 has the employee claim regular and estimated-deduction allowances and any additional amount, and says that if no completed DE 4 is provided, the employer must withhold as Single with zero allowances. A DE 4 claiming exempt is valid only for the year filed; a new one is due by February 15 to keep the exemption. New York says to use Form IT-2104; if an employee gave a 2020-or-later federal Form W-4 and no IT-2104, the employer may use zero allowances, which New York warns may produce the wrong withholding. IT-2104 asks whether the employee lives in New York City or Yonkers, and its employer section says to send New York a copy when an employee claims more than 14 allowances. Illinois Publication 130 says that without a completed IL-W-4 the employer withholds with no allowances, and the IL-W-4 notes that an employee who claimed exemption on the federal W-4 may still need Illinois tax withheld. California and New York each warn that a false certificate that reduces withholding can bring a $500 penalty.

Registering and getting a state account number. Each state issues its own withholding account. California's DE 44 says a business becomes a subject employer when it pays over $100 in wages in a calendar quarter, must register with the Employment Development Department (EDD) within 15 days, and receives an eight-digit employer payroll tax account number for all deposits, returns and letters. Illinois Publication 130 says employers that withhold must register with the Department of Revenue, online through MyTax Illinois or on Form REG-1, and new registrants start on the monthly payment, quarterly return schedule. Pennsylvania registers withholding accounts through its online business registration on myPATH, uses an 8-digit Account ID, and requires W-2 wage withholding to be kept in an Employer Withholding account separate from 1099 withholding.

Deposit and return schedules, as examples. California: Personal Income Tax (PIT) and State Disability Insurance withholdings go in with the Payroll Tax Deposit (DE 88), and their due dates follow the employer's federal deposit schedule and the PIT accumulated; a semi-weekly federal depositor with more than $400 of accumulated PIT deposits on the same Wednesday or Friday pattern as federal deposits. The quarterly DE 9 reconciles deposits and the DE 9C lists each employee's PIT wages and PIT withheld; for the third quarter of 2026 they are delinquent if not filed by November 2, 2026. Illinois: payments go in with Form IL-501, monthly by the 15th of the following month or semi-weekly, and Form IL-941 is filed electronically by the last day of the month after each quarter; Illinois has no annual reconciliation return. New York: Form NYS-45 is due April 30, July 31, October 31 and January 31, and the department says no extensions are allowed. Pennsylvania: deposits are quarterly under $300 a quarter, monthly from $300 to $999, semi-monthly from $1,000 to $4,999.99, and semi-weekly at $5,000 or more, with a quarterly return (W-3). California's SDI is covered under SDI tax.

Which state's tax applies. Each state sets its own residence and work-location rules. New York lists whom employers must withhold for: state residents even when wages are earned outside the state, nonresidents paid for work within the state, New York City residents even when they work outside the city, and Yonkers residents and nonresidents working in Yonkers. Pennsylvania's Employer Withholding Information Guide (REV-415) says a resident working entirely in another state has Pennsylvania tax withheld on all pay unless the other state has an income tax and the employer is withholding it; a nonresident working partly in Pennsylvania has tax withheld on the share for Pennsylvania days. California's DE 44 says that when a California resident's wages are also subject to another state's withholding, the employer withholds for the other state and only the amount by which California withholding exceeds it, or no California tax if the other state's withholding is equal or greater. Illinois treats pay as paid in Illinois when the work is localized there, and also when a nonresident whose pay is not localized anywhere works more than 30 working days in Illinois.

Reciprocal agreements. A reciprocal agreement lets a commuter have only the home state's tax withheld. Under REV-415, a resident of one of Pennsylvania's six reciprocal states who works in Pennsylvania files an Employee's Nonwithholding Application Certificate (REV-419), and the Pennsylvania employer then withholds the home state's tax and pays it to that state. Illinois Publication 130 says that residents of Iowa, Kentucky, Michigan and Wisconsin claim exemption on Form IL-W-5-NR, that without the form Illinois tax must be withheld, and that the employee must notify the employer within 10 days of moving out of the state named on the form. Both states extend similar nonwithholding to certain military spouses under federal law.

Local income taxes, as examples. Some cities and school districts tax wages too. New York State withholding includes New York City and Yonkers tax, using separate tables (NYS-50-T-NYC and NYS-50-T-Y) and a jurisdiction lookup by address. In Pennsylvania, the Department of Community and Economic Development says employers with Pennsylvania worksites must withhold the local Earned Income Tax (EIT) and Local Services Tax, have each employee complete a Residency Certification Form, and withhold the higher of the resident rate for the home municipality and the nonresident rate for the work location; Philadelphia follows its own rules and is paid to the city's Department of Revenue.

Reporting on Form W-2. The 2026 IRS instructions say to enter the two-letter state abbreviation and the employer's state ID number in box 15, with state wages in box 16 and state income tax withheld in box 17; boxes 18 through 20 are for local wages, tax and locality name. Two states and two localities fit on one form, and a second Form W-2 is used for more. Copy 1 goes to the state, city or local tax department if required. Illinois tells employers to make the sum of state wages in box 16 equal box 1, and California says DE 9C PIT wages for the year should match box 16.

Supplemental pay. States set their own method for bonuses and similar pay. California's 2026 DE 44 lets employers withhold 10.23% on bonuses and stock options and 6.6% on other supplemental wages, or use an aggregate method. Pennsylvania adds supplemental pay to the current period's compensation and applies 3.07%. The federal side is explained under flat tax withholding and supplemental wages.

Example 1 (Illinois Publication 130). Mary, a Missouri resident, earns $60,000 and works 35 of her 250 working days in Illinois. Because she worked more than 30 days there, 35 / 250 = 14% of her pay, or $8,400, is paid in Illinois and subject to Illinois withholding.

Example 2 (illustration, Pennsylvania). A Pennsylvania resident working only in Pennsylvania earns $2,000 per biweekly payroll. At the flat 3.07% rate for 2026, the employer withholds $61.40 of Pennsylvania personal income tax each payday, plus any local EIT due.

Example 3 (illustration, California). A California resident works a project in a state that taxes wages. For one payroll, the other state's withholding is $40 and California's, figured from the DE 4, is $55. Under DE 44 the employer withholds $40 for the other state and $15 for California. Had the other state's amount been $55 or more, no California tax would be withheld.

Recordkeeping. California's DE 44 says to keep payroll records at least four years, and records of payments to service providers for at least eight years if the business believes it is not a subject employer. Illinois says to keep employment records, including undeliverable W-2s, at least four years, and to keep Form IL-W-6 worksheets for nonresidents expected to work more than 30 days in Illinois unless a qualifying time and attendance system records work locations.

Question: Must an out-of-state employer withhold for a New York resident? New York says an employer not incorporated or licensed in New York, with no office or business there, is not required to, but becomes subject to New York requirements if it agrees to withhold for the employee's convenience.

Rules differ in every state; this entry describes examples from official pages and does not decide which state's tax applies to a particular employee.

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