Generally, employers are required to withhold both state and county taxes from employees’ wages. However, they have to register to withhold tax in Indiana but must have an Employer Identification Number issued by the federal government. This forms part of Indiana’s state payroll taxes every employee is liable to pay. It is charged at a flat rate of 3.23% and, in addition, there is a county income tax where every county has its allocated tax rate.
Overall, an employer is eligible to register for withholding tax if the business has:
- Non-resident partners
- Non-resident shareholders
- Beneficiaries for income distributions
All employees working in Indiana State are therefore required to fill in the WH-4 Indiana state tax withholding form, titled Employee’s Withholding Exemption and County Status Certificate. The Indiana WH-4 form can be downloaded under the withholding tax form section of the Indiana Department of Revenue website. The purpose is to ensure the state income tax is accurately withheld from the employee’s pay. The Departmental Notice#1 also assists in determining the correct county income tax to withhold from employees’ wages by providing the correct tax rates for each of the 92 counties. The form is filled by both resident and non-resident employees.
Each county has its respective county tax rate charged against an employee’s wages. January 1st commences the taxable year for an individual. So, by January 1st, the county where the individual resides plus the county where the principal business or place of employment is located is determined. If, on January 1st, an employee is living in an Indiana county, then the withholding agent shall withhold county tax based on the county of residence. If the employee is outside the state, but the principal place of work or business is an Indiana county by January 1st, then they are required to pay county tax as per the rate of that particular county. But, if the employee lives and works outside Indiana and then moves to Indiana on January 2nd, they will not be liable to any county tax for the whole year.
Contents of the Indiana WH-4 Form
The form comprises two sections in which an employee is required to fill in their personal details and details for claiming withholding exemptions.
In the first section, the information required is:
- Full Name
- Social Security Number or ITIN
- Home address
- Zip Code
- Indiana County of Residence as of January 1st
- Indiana County of Principal Employment as of January 1st
The second section has 8 lines and all resident employees are required to fill lines 1 to 7 except non-resident employees who should only fill line 1 and jump to line 7.
Lines 1, 2, 3, and 4 are filled in respect of personal and dependent exemptions an employee can claim. Every employee is entitled to deductions amounting to $1,000 per year for every exemption which is claimed on line 5 (total exemptions claimed on lines 1, 2, 3, and 4). As for dependent exemptions, employees can deduct $1,500 every year for each qualifying dependent exemption which is claimed on line 6 of the WH-4 form.
Personal exemptions entail additional exemptions if:
- the employee and/or the employee’s spouse are over the age of 65
- the employee and/or the employee’s spouse are legally blind
Line 6 is for additional dependent exemptions for specific dependent children including son, daughter, stepson, stepdaughter, foster child, or a child under the employee’s legal guardianship.
Lines 7 and 8 are for if an employee wants to fill any additional state and county withholding amount to be withheld, respectively each pay period.
The employee then signs-off and indicates the date.
An employee can file a new WH-4 if the number of exemptions increases. If the number of exemptions that have been claimed before reduces (due to divorce or a dependent is now under another person’s care or is not receiving over 50% support), the employee must file a new WH-4 form within 10 days.
Employees and employers are discouraged from falsifying information or providing information that minimizes the withholding exemption or risk facing penalties.
The Indiana Department of Revenue provides clear and current guidelines and additional resources to ensure employers adhere to the state withholding tax obligations. If you are interested in being updated and ensuring that your company complies with Indiana’s withholding tax requirements, please contact us. ASAP Payroll is available to answer any questions you have as well as assist you to accurately fill out the Indiana WH-4 form.