Payments 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).
How is Vermont Income Tax Withholding Computed
The Vermont Income Tax Withholding is calculated 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.
Employees who have adjusted their federal withholding in anticipation of a credit(s) and employees who are in civil unions or civil marriages will not have the correct Vermont tax withheld unless they complete form W-4VT.
Employees should complete or update form W-4VT. The Department strongly recommends that employers require their employees to complete or update form W-4VT.
An employer may use the information from federal form W-4 if a Vermont form is not submitted, but there is a possibility that not enough tax will be withheld. This could result in a tax liability or tax owed when employees file their taxes. 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 30% of the extra federal withholding.
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 Vermont withholding on the wages for the entire 40 hours is $48.00, the Vermont withholding for the 16 hours is:
Calculation: $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.
Civil Unions or 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.
Note: This applies only in the case of civil unions and civil marriages and not to domestic partnership arrangements.
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 nonperiodic 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.
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.
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 through myVTax, or use 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 pay the tax due online through myVTax , or you may file using paper forms available on our website.
Filing Forms W-2 and/or 1099
All employers are required to file Form WHT-434, Annual Withholding Reconciliation by January 31 each year. 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 previous 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 through 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.
Combined Fed/State Program
The Vermont Department of Taxes is no longer participating in the Combined Fed/State program for submitting W-2 and 1099 forms with the IRS. You must file these forms directly with the department.
If you have questions, call the Taxpayer Services Division at (802) 828-2551 or send an email to firstname.lastname@example.org.
Internal Revenue Service (Federal income tax)
Telephone: (800) 829-1040
Social Security Administration (Social Security/Medicare tax)
Telephone: (800) 772-1213
Vermont Department of Labor (unemployment insurance, minimum wage, overtime, worker comp.)
Telephone: (802) 828-4000