© 2020 American Payroll Institute, Inc. Withholding Tax Calculations for States That Use Federal Form W-4 By: Jim Medlock, CPP, Payroll Compliance Educator at Medlock & Associates Tthefederal he Tax Cuts and Jobs Act (TCJA) changed methods used to calculate federal income tax. This impacted the states that used the federal model for calculating state income tax. In 2020, four states (Colorado, New Mexico, North Dakota, and Utah) use only the federal Form W-4, Employee’s Withholding Certificate, in the calculation of state income tax. Colorado The Colorado Department of Revenue has developed a worksheet found in Publication DR 1098, Colorado Income Tax Withholding Worksheet for Employers, which is similar to the IRS worksheet in Publication 15-T, Federal Income Tax Withholding Methods. Colorado’s worksheet provides a method to calculate Colorado income tax using the 2020 or an earlier version of the federal Form W-4. As with the withholding tables in Publication 15-T, Colorado starts the calculation by annualizing the employee’s pay period income. Colorado allows an $8,000 reduction of the annualized amount for those claiming Married Filing Jointly and $4,000 for those claiming Head of Household or Single or Married Filing Separately. Next, the annual Colorado income tax is calculated at Colorado’s 4.63% rate on all taxable income, and then the annualized tax is divided by the number of pay periods to figure the pay period withholding. Colorado employees may use the federal Form W-4 to claim exemption from Colorado income tax withholding by indicating on the form they are exempt from Colorado income tax withholding. New Mexico New Mexico allows the use of the 2020 or prior year Forms W-4 as New Mexico tax laws no longer allow adjustments for allowances when calculating state income tax withholding. New Mexico taxable wages subject to withholding are not reduced by the number of allowances claimed on Forms W-4 before 2020. New Mexico’s withholding calculation method provides for the filing status found on Form W-4. The use of the federal 2020 or earlier Form W-4 will increase New Mexico income tax withholding. Employees can request additional state withholding on the Form W-4 by writing “For New Mexico State Withholding Only” at the top of a separate federal Form W-4 and by entering the additional amount to be withheld under Step 4c. North Dakota North Dakota revised its 2020 withholding methods and tables to conform, in certain respects, to the 2020 federal Form W-4 changes. North Dakota allows the use of the 2020 Form W-4 and prior versions of the federal Form W-4. The 2020 North Dakota Income Tax Withholding Rates and Instructions publication provides two sections describing the calculation of North Dakota income tax. Section 1: When the employee has submitted a prior version of Form W-4, North Dakota has updated the methods used before 2020, using the employee’s marital status and allowances from the 2019 or earlier Form W-4. Section 2: When the employee has submitted a 2020 Form W-4, North Dakota has developed a worksheet similar to the worksheets in IRS Publication 15-T. North Dakota has provided withholding tables for the filing statuses on the 2020 Form W-4 (Married Filing Jointly, Head of Household, and Single or Married Filing Separately). The Section 2 method annualizes the pay period wages, applies the graduated income tax withholding tables, and then divides the annual withholding amount by the number of pay periods. If an employee claims exemption from withholding on the federal Form W-4, the exemption is recognized for North Dakota income tax withholding. Utah Utah describes employer’s responsibilities for calculating Utah state income tax withholding and the use of the federal Form W-4 in Publication 14, Utah Withholding Tax Guide. Utah employers can use the federal Form W-4 for 2020 or any prior year provided by Utah employees. Utah provides eight schedules (Weekly, Biweekly, Semimonthly, Monthly, Quarterly, Semiannual, Annual, and Daily or Miscellaneous) to use when calculating Utah income tax. Each of the eight methods only use the Marital Status from the pre-2020 Forms W-4 and the filing status on the 2020 Form W-4. Utah has not provided a withholding method for employees claiming Head of Household on the 2020 Form W-4 and has instructed employers to use the Single method when an employee claims Head of Household. Utah employees may only claim exempt from withholding when the employee meets the requirements of the exclusion for Interstate Transportation Wages or Active Duty Service Member’s Nonresident Spouse Wages. In both cases, Utah Publication 14 defines how the employee must complete Form W-4 to be exempt from Utah income tax withholding. Congress Xstream workshop More information on federal and state calculations using the 2020 federal Form W-4, including information on May 18, 2020 Volume 22 Issue 10
Next Page