What if my business is located outside of Vermont but my employee lives in Vermont?
If the work is performed in Vermont, Vermont Income Tax must be withheld regardless of whether the employer is located inside or outside of Vermont.
Do I need to register my business in Vermont to withhold taxes for my employee?
You must register for an employer withholding account. When you register for a Vermont business tax account, be sure to answer the question about hiring employees. If you answer "Yes," then that will prompt the Department to open an employer withholding account for your business.
If an employee has to adjust federal withholding, does the employee need to adjust Vermont withholding?
Yes, anytime an employee makes changes to a federal W-4, he or she should also look at their Vermont W-4VT to make sure the number of allowances claimed is up to date. Read our Vermont W-4VT frequently asked questions to learn more.
I have employees who are in a civil union or marriage. Does that affect their withholding?
Yes, 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 pre-tax 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.
What happens when an employee elects optional federal withholding?
Vermont withholding is required where the recipient elects optional Federal withholding and does not specifically state that the payment is exempt from Vermont withholding (e.g. annuities, supplemental payments, and deferred compensation payments). 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 30% 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.
How are payments made under a non-qualified deferred compensation plan taxed?
When an employer 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.
I have an employee who works in another state. How do I calculate withholding?
If your employee is a nonresident 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.
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
If your employee is a resident and you pay them for services performed in another 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.