What is state income tax?
As a business owner, managing state income tax is essential to running payroll. It’s a tax imposed by individual states on employee earnings, and employers are responsible for withholding the correct amount from paychecks and remitting it to the state tax agency. To simplify this process, Homebase payroll automates state tax withholdings and filings, helping businesses stay compliant easily.
While not all states have an income tax, those that do have specific regulations that employers must follow. Understanding these rules ensures compliance and prevents employees from facing unexpected tax bills.
States with income tax
Most states impose a state income tax, but the structure varies. Some states have a flat tax rate, while others use a progressive system (similar to federal income tax). A few states don’t tax wages at all.
States with no state income tax:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
You don’t need to worry about state income tax withholding if you operate in one of these states. However, if you have employees in multiple states, you must follow each state’s tax rules.
How state income tax impacts payroll
For businesses in states that impose an income tax, employers must:
- Withhold the correct amount from employee paychecks based on state tax tables.
- Deposit withheld taxes to the appropriate state agency on time.
- File state tax returns, usually on a quarterly or annual basis.
- Stay compliant with state laws, which may change annually.
Each state has its own tax requirements, so checking with your state’s Department of Revenue is crucial to ensure compliance.
Calculating state income tax withholding
The amount you need to withhold from an employee’s paycheck depends on:
- Employee earnings
- State of residence and work location
- State tax rates and withholding tables
- Information on the employee’s state W-4 or equivalent tax form
Some states require a separate state withholding certificate, while others rely on the federal W-4 form to determine tax withholdings. Be sure to check your state’s requirements.
State income tax payment deadlines
Each state sets its own payment and filing deadlines. Typically, employers must deposit withheld state income tax either monthly, quarterly, or annually, depending on:
- Payroll size
- Total tax withheld
Late payments can lead to penalties and interest charges, making timely compliance critical. If managing multiple state tax filings feels overwhelming, Homebase payroll automates tax withholdings and filings, ensuring accuracy and compliance.
Common mistakes employers make with state income tax
Managing state income tax correctly can be tricky, especially if you have employees in multiple states. Common mistakes include:
- Failing to register with the state tax agency – Employers must set up accounts in every state with employees.
- Withholding the wrong amount – Tax rates and brackets vary, so always use the latest state tax tables.
- Missing filing deadlines – Late payments can result in penalties and interest charges.
- Not updating employee withholding elections – Employees should review their withholdings annually or after major life changes.
Avoiding these mistakes will save your business time and money while keeping your payroll tax obligations in check.
How Homebase makes state income tax filing easy
Keeping track of state tax laws, filing requirements, and payment deadlines can be time-consuming—but Homebase payroll does the heavy lifting. With Homebase, you can:
- Automatically withhold and deposit the correct state income tax.
- Stay up to date with state tax rate changes.
- Ensure on-time tax filings to avoid penalties.
- Keep tax records organized and accessible for reporting.
Let Homebase handle your payroll tax compliance—so you can focus on growing your business.