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What is State Income Tax (SIT)?
Various tax deductions are made from workers’ wages. For example, federal income tax is deducted from the employee’s wages by the employer. So what is State Income Tax? State income taxes are deducted from employees’ wages, just like federal income tax. We will talk about them in this article and we will guide you in this regard.
What is SIT?
State Income Tax is one of the types of tax deducted from each employee’s payroll. State Income Tax is a type of tax that employers and small business owners deduct from their employees’ gross wages and then send to the relevant state tax office. In other words, it is the type of tax deducted from the wage of the worker. Some states require this tax to be paid. State Income Tax rates vary by state. Some states do not even have state income taxes.
Form W-4 and State Income Tax
Employers are required to pay state income tax as well as federal income tax. I would like to briefly talk about Form W-4. Employees can fill in Form W-4 for State Income Tax in some cases, but this is not mandatory and varies by state. However, employees must complete Form W-4 for a federal income tax deduction. For this, let’s talk about Form W-4 first. As can be understood from the legal name of the form, W-4 Form is the employee’s withholding tax document. Employees must complete and submit the IRS Form W-4 to their employer before starting work.
The information on this form ensures that the correct amount of federal income tax is deducted from the employee’s salary. So it is important to fill out this form as an employee so that you can get the right amount of deductions from your salary. With this form, you will report your marital status, dependents, and whether you have a second job. As an employer, you must request this form from your employees. If you want to get detailed information, you can also check our blog post about the IRS W-4 form. So why did we mention this Form W-4? Because we said that the IRS Form W-4 determines the amount of federal income tax that must be deducted from the employee’s salary. The situation is similar for the states. Employers can use State form W-4 to determine the State Income Tax withholding for employees.
State income tax rates vary by state. Some states set taxes at a fixed rate. In these states, every employee is taxed at the same rate. But some states also set a progressive tax rate. The tax rate changes according to each employee in the progressive tax rate. This rate varies depending on the earnings of the employee. We mentioned that employees fill in Form W-4 and give it to their employer before starting work to determine the federal income tax deductions. Just as in this case, employees may also need to complete and submit state W-4 forms before starting employment, so as to determine the state tax rate, but it is not mandatory for every state. State W-4 Forms, like Federal W-4 forms, allow collecting information about the employee. With the information on State Form W-4, you can determine how much state income tax you will deduct from your employee’s salary. Most states have the W-4 form in their version for the state income tax deduction. Some states also allow the use of the federal form W-4. We recommend that you research which states allow for this. Generally, in states that do not have a flat tax rate, this Form w-4 must be provided for state income tax rates.
States generally charge state income taxes. However, some states do not charge state income taxes. As we just mentioned, each state may have its own state income tax rates. State income tax rate varies by state. As an employer, it is important to pay attention to these issues. Some states set a flat tax rate, while others set a tax rate based on employee earnings. In some states, however, there is no state income tax. What are the states without an income tax? Let’s talk about them.
States Without State Income Tax
There are 9 states that do not charge income tax. However, even though there is no state income tax in these states, there are other types of taxes that must be paid. For example, you can pay taxes such as property tax and sales tax. Moreover, these tax amounts may be at high rates.
- New Hampshire
- South Dakota
State Income Tax Rates
As we mentioned above, there are State Income Tax rates that vary from state to state. They fall under two titles.
- Progressive Tax rate
States Determining Fixed State Income Tax Rates
The following states have a fixed State Income Tax rate. The amount of tax payable does not change depending on the amount earned by the employee.
- Pennsylvania (3.07%)
- Indiana (3.23%)
- Michigan (4.25%)
- Colorado (4.63%)
- Utah (4.95%)
- Illinois (4.95%)
- Kentucky (5.00%)
- Massachusetts (5.05%)
- North Carolina (5.25%)
States Determining Progressive Income Tax Rate
It is applied in the rest of the states other than the states listed above and the District of Columbia. States determining progressive income tax rates:
- District of Columbia
- New Jersey
- New Mexico
- New York
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
In these states, the amount of state income tax to be paid varies according to the earnings of the employee. The higher the earnings, the higher the tax rate to be paid. For detailed information on the rates in the states, you can check the state websites.
To sum up, State Income Tax is a type of tax deducted from employees’ wages. It is deducted from the employee’s wage and paid by the employers. As we mentioned above, while some states have to pay State Income Tax, some states do not. State Income Tax payments vary by state. States use 2 methods to determine state income tax. While some states adopt a fixed tax rate that is the same for all, some states adopt a progressive tax rate. In short, if you are an employer, you should first check whether state income tax payment is made in that state. If it is, you have to make deductions from the wages of your employees and make these payments to the relevant state.
*This document should not be assumed as legal advice. This information is subject to change, please contact our team of attorneys to confirm.