1. What payments are subject to Vermont Income Tax Withholding?
Wages, pensions, annuities, and other payments are generally subject to Vermont income tax withholding if the payments are subject to Federal tax withholding and the payments are made to:
- a Vermont resident or
- a nonresident of Vermont for services performed in Vermont.
For further information on wages or payments subject to Federal withholding tax, see IRS Publication 15 (Circular E).
2. How is Vermont Income Tax Withholding Computed?
The Vermont Income Tax Withholding is computed in the same manner as federal withholding tax by using the Vermont withholding tables or wage bracket charts. The filing status, number of withholding allowances and any extra withholding for each pay period is determined from the employee’s Form W-4VT, Vermont Employee’s Withholding Allowance Certificate.
Form W-4VT: Employers should have all employees complete Form W-4VT. An employer may use the information from federal Form W-4 if a Vermont form is not submitted. If the federal Form W-4 indicates an additional amount of federal withholding for each pay period on Line 6, the Vermont withholding should be increased by 24% of the extra federal withholding.
3. Adjustments for Services Not Performed in Vermont
Nonresidents: When an employee is not a Vermont resident and works in Vermont and another state during a payroll period, compute the tax on the full payment and then multiply the ratio of Vermont hours to total hours.
For example, a nonresident employee worked in Vermont for 16 hours during a 40-hour pay period. If the state withholding on the wages for the entire 40 hours is $48.00, the Vermont withholding for the 16 hours is:
$48.00 x 16/40 = $19.20
Residents: If a payment to a Vermont resident includes payment for services performed outside this state, the withholding is computed on the full payment then reduced by the income tax withheld for the state where services were performed. An employee who moves into Vermont during a tax year is considered a resident for withholding purposes.
4. Civil Unions or Civil Marriages
Vermont withholding for employees who are partners in civil unions or civil marriages is determined by the filing status of the employee—either married filing joint or married filing separate. The Vermont taxable wages may differ from the federal wages due to the treatment of fringe benefits affecting the employee’s partner.
For the purpose of treating a cafeteria plan payment as pretax or imputing income from an employer-paid benefit, the federal rules for the payment are applied for state purposes as though the employee’s partner is a spouse.
5. Annuities, Supplemental Payments and Deferred Compensation Payments
You must withhold Vermont income tax on payments to Vermont residents when federal withholding is required. Vermont withholding is also required where the recipient elects optional federal withholding and does not specifically state that the payment is exempt from Vermont withholding.
For periodic payments, the tax is computed using the Vermont wage charts or tables. For non-periodic payments, the Vermont withholding can be estimated at 24% of the federal withholding. In all cases, the taxpayer is responsible for ensuring that the correct amount is withheld to avoid underpayment of the Vermont tax liability.
6. Payments Under a Non-Qualified Deferred Compensation Plan
When a person makes a payment that was previously deferred under a non-qualified deferred compensation plan, the correct withholding rate is 6% of the deferred payment. The withholding is based on both the deferred payment and any income that may be derived from the deferred compensation.
7. Reporting and Remitting Vermont Income Tax Withheld
If you pay wages or make payments to Vermont income tax withholding, you must register with the Vermont Department of Taxes for a withholding account. You may register online at myVTax, or you may register using Form BR-400, Application for a Business Tax Account.
The Department will determine your filing frequency based on your annual withholding totals. You may file your returns and remit the tax online easily and conveniently at myVTax, or you may file using paper forms.
8. Filing Forms W-2 and/or 1099
All employers are required to file Form WHT-434, Annual Withholding Reconciliation. This form serves as the transmittal for Forms W-2 and/or 1099 and reconciles the amount of Vermont income tax withholding reported during the year to the amount of withholding tax shown on the W-2 and/or 1099 forms. Form WHT-434 and Forms W-2 and 1099 may be filed on our online filing site at myVTax.
The Commissioner of Taxes has mandated the electronic filing of Form WHT-434 and the accompanying forms for all employers who will submit 25 or more W-2 and/or 1099 forms. Payroll filing services have been mandated to submit all filings electronically.
9. Contact Information for the Department of Taxes and Other Government Agencies
Vermont Department of Taxes, Taxpayer Services Division
|Hours:||Monday, Tuesday, Thursday and Friday
7:45 a.m. to 4:30 p.m.
Internal Revenue Service (Federal income tax)
Social Security Admin. (Social Security/Medicare tax)
Vermont Department of Labor (unemployment insurance, minimum wage, overtime, worker comp.)