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Income Tax Withholding for Employees

How to Calculate Withholding Tax

Withholding tax is really an estimate of tax you owe, and you won’t know for sure how much you owe until you file your tax return. If too much tax is withheld, you will get a tax refund, but then you won’t have as much money in your paycheck to pay your expenses. On the other hand, if too little is withheld, you will owe tax, and that may be money you do not have readily available at the time you file.

Federal Income Tax Withholding

Finding the perfect balance may take a bit of trial and error, especially as your filing status and number of allowances may change from year to year. The IRS encourages everyone to use the IRS Tax Withholding Estimator to perform a quick “paycheck checkup” for federal income tax. The federal tax withholding estimator can help you estimate the right amount of federal taxes that should be withheld from your paycheck.

Use the IRS Tax Withholding Estimator

Complete Form W-4, Employee’s Withholding Certificate

It is important to complete Form W-4 accurately so your employer withholds the right amount of tax from each paycheck. The income tax your employer collects, and pays is a percentage of your income based on your filing status and other information you give to your employer on Form W-4. We recommend that employees who complete a federal Form W-4, Employee's Withholding Allowance Certificate (pdf), are complete a Vermont Form W-4VT, Employee’s Withholding Allowance Certificate (pdf).

You can learn more about Form W-4 before completing and submitting it to your employer. The instructions for Form W-4 provides a worksheet to help you determine how many allowances to take. Be sure your employer is using the most recent version of Form W-4.

Vermont Income Tax Withholding

Payments subject to Vermont income tax withholding include wages, pensions, and annuities. Other payments are generally subject to Vermont withholding if the payments are subject to federal withholding and the payments are made to:

  1. a Vermont resident or

  2. a nonresident of Vermont for services performed in Vermont.

The number of allowances used to calculate your Vermont withholding will likely differ from your result using the IRS Tax Withholding Estimator. To update your Vermont income tax withholding, you should submit an updated Form W-4VT to your employer.

Complete Form W-4VT, Employee’s Withholding Allowance Certificate

The Vermont Department of Taxes encourages all employees to complete Vermont Form W-4VT (pdf) so the employer has the information needed to calculate Vermont withholding. Not all employers ask their employees to complete Form W-4VT because the form is not required. However, as federal and Vermont tax laws have changed, withholding for federal taxes may no longer work for Vermont taxes.

Like federal Form W-4, it is important to complete this as accurately as possible so that your employer will withhold the right amount of Vermont tax from each paycheck. Form W-4VT includes a worksheet to help you figure out how many allowances to take. Be sure your employer is using the most recent version of Form W-4VT.

We recommend you learn about Form W-4 before completing and submitting it to your employer. Be sure your employer is using the most recent version of Form W-4. 

Download Vermont Form W-4VT (pdf)

Here are some things to remember as you complete your W-4VT:

  • Generally, dependents are children under 19 (or up to 24 if they are a full-time student) and any relatives who live with you and who you support financially.

  • If you and your spouse both claim your dependents on your respective W-4VTs, not enough income tax will be withheld, and you might end up with taxes due when you file. Only one spouse should claim the dependents.

  • If you entered an additional amount to be withheld on the federal W-4, consider entering 30% of that amount on Line 6.

  • If you have more than one employer, consider claiming zero allowances with the employer(s) where you earn less income.​

  • If you qualify for the Vermont Child Tax Credit you may want to consider having less income withheld from your paycheck by claiming the maximum number of dependents.

Read our frequently asked questions about Vermont employee's withholding allowance certificates to help you determine the correct withholding.

Submit Completed Forms W-4 and W-4VT to Your Employer

Whenever an employee has income, an employer is required to withhold income tax. Once the employer has the information you’ve entered on forms W-4 and W-4VT, the employer will be able to calculate your withholding tax. To help employers calculate and withhold the right amount of tax, the IRS and the Vermont Department of Taxes issues guidance each year that include detailed instructions and withholding charts and tables. When you receive your pay—either by direct deposit or paper check—your employer has already deducted federal and state income taxes, as well as payroll taxes such as Social Security and Medicare.