Multi State Tax Withholding

Getting the right amount of State Tax withheld from your wages can be a problem when working in multiple states or a state different from where you live.  In many situations your employer withholds state tax as if you were single and with zero exemptions.  This will result in “Over Withholding” taxes for that state and you will have to wait until you file a return to get your refund.  This can be as much as a year or more from the time, it was withheld from your paycheck.  

Another important item to remember when working in a state that does not have a personal income tax you could end up being under withheld for your home state.  It would benefit you to give your employer a W-4 for your home state during that job.

The remedy for this is information on the states where you work, your home state, and by submitting a state W-4 or Withholding Allowance Certificate.  Additionally, knowing what your estimated taxes for wages earned will be helps to adjust the number of exemptions claimed on the W-4’s, thus keeping more money in your paycheck.  Knowing what the estimated tax will be can also allow you to claim exempt from withholding and then pay the estimated tax at the end of the year.  An example of this;

Bob (a Florida resident) worked this spring in Virginia for 5 weeks.  He claimed exempt from withholding by giving his employer a Virginia W-4 directing this.  At the end of the calendar quarter, he calculated the estimated tax on his earnings from Virginia.  He does not expect to work in Virginia again this year.  The estimate showed he would owe $121.00.  He filled out a payment voucher for that amount and sent it to Virginia.  If by chance he were to work another job in Virginia this year, after the job was over he would recalculate the estimated tax on the total wages and pay another estimate if required.  Next year when he files his Virginia tax return, he claims the estimated payments and will owe no tax, thus breaking even with Virginia.

The true gain in this - if he had Virginia taxes withheld at his filing status and number of exemptions there would have been $483.00 withheld from his pay.  Instead he paid Virginia $121.00 and put the other $362.00 to good use because he did not have to wait a year or more to get his money back.  He could also have estimated his earnings and estimated tax, and then using a “withholding calculator” adjusted his Virginia W-4 for the correct number of exemptions to achieve the proper amount of withholding. 

A few more words about claiming exempt from withholding.  You may see on some of the W-4's statements about meeting certain requirements to claim exempt or that you certify the number of withholding exemptions are true and accurate.  Some even use the phrase "under penalty of perjury" about the accuracy of the exemptions claimed.  The bottom line is that the Federal and state tax laws explicitly state that you have the right to the "correct" amount of tax withheld from your wages. 

They also have laws concerning fraudulent use of withholding to escape paying the tax due when you should file a return.  There are penalties for not estimating and paying tax on a quarterly basis.  It is a good practice to track estimated taxes due on your federal and state taxes.  This eliminates penalties and surprises when you file returns. 

You can look at changing the number of exemptions on a W-4 to bring the amount of withholding closer to the amount of tax due. It involves some time and effort but it is worth it rather than waiting many months for a refund. 

Claiming exempt from withholding is not for every one in every situation, but it does not hurt to examine the possibility for each job you work.

Look in the tax tools section of our web site for calculators that will assist you in getting your withholding correct, so you can keep more of your hard earned money in your pocket

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If we can be of assistance or answer any questions do not hesitate to contact us.