Delaware withholding tax is a key component of the state’s tax system, requiring employers to withhold state income taxes from employee wages and remit them to the Delaware Division of Revenue. This tax ensures that employees meet their state income tax obligations throughout the year, helping to avoid large tax bills when filing annual returns. For businesses operating in Delaware, understanding how withholding tax works, how to calculate it, and how to file and pay it on time is essential for compliance. On the employee side, accurate withholding ensures that enough tax is deducted to prevent underpayment or overpayment, which can lead to penalties or delays in refunds.
Delaware withholding tax is a system where employers deduct state income tax from employees’ wages and remit those amounts to the Delaware Division of Revenue. This tax is taken out of the employee’s paycheck and forwarded to the state regularly. It’s similar to federal income tax withholding but is specific to Delaware residents and employees working in Delaware.
The amount of withholding is based on the employee’s income, tax filing status, and the number of withholding allowances claimed on Form W-4, the employee’s withholding certificate. The tax that is withheld from employees’ paychecks goes toward covering their Delaware state income tax liability, which will be calculated when they file their personal tax returns.
Who Must File Withhold Delaware State Income Tax?
- Employers: Any business or individual that employs workers in Delaware is required to withhold state income tax from employees’ wages, regardless of where the employer is based. This applies to both full-time and part-time employees, as well as seasonal and temporary workers.
- Employees: Any individual who earns wages in Delaware is subject to withholding, even if they live out of state. Employers must withhold Delaware state tax for non-resident employees if they work in Delaware.
Income Types Subject to Delaware Withholding Tax
Employers must withhold taxes on the following types of income:
- Regular wages (hourly and salaried earnings).
- Bonuses and commissions.
- Severance pay.
- Vacation pay and other forms of leave compensation.
- Other taxable benefits and compensation.
How to Calculate Delaware Withholding Tax?
The amount of Delaware withholding tax is determined by:
- The employee’s earnings: Higher wages result in higher withholding amounts.
- The employee’s filing status: Employees indicate their filing status (e.g., single, married) and allowances on Form W-4.
- Tax tables: Delaware provides withholding tax tables that employers use to determine the exact amount of tax to withhold based on earnings and allowances.
Employers should use the Delaware Employer’s Withholding Tax Guide to ensure they are calculating withholding accurately.
How to File and Pay Delaware Withholding Tax?
Employers are required to remit Delaware withholding tax on a regular basis to the Division of Revenue. The frequency of filing and paying withholding tax depends on the total amount of tax the business is required to withhold. Delaware provides several filing schedules:
- Quarterly filers: If the total tax liability is under a certain threshold, businesses may be required to file and pay quarterly.
- Monthly filers: Employers with a moderate tax liability must file and pay on a monthly basis.
- Eighth-monthly filers: Employers with large payrolls and high withholding amounts must file every three days.
Delaware provides several methods for filing and paying withholding tax:
- Online: Through the Delaware Division of Revenue’s online portal, employers can file their returns and make payments electronically, which is the fastest and most convenient option.
- By mail: Employers can also submit withholding tax returns and payments via paper forms, though this method is slower and may result in delays.
- Automatic payments: Employers can set up automatic electronic funds transfers (EFT) to ensure timely payment of withholding taxes.
Delaware Withholding Tax Deadlines
- Quarterly payments are due on the last day of the month following the close of the quarter (e.g., April 30 for the first quarter).
- Monthly payments are due on the 15th day of the following month.
- Eighth-monthly payments are due within three days of the payroll period.
Late payments can result in penalties and interest, so it’s important to ensure all payments are made on time.
Failure to properly withhold, file, or pay Delaware withholding taxes can result in severe penalties, including:
- Late payment penalties: A percentage of the tax owed, compounded over time.
- Interest on unpaid taxes: This accrues on any tax balances that remain unpaid after the due date.
- Failure to file penalties: If an employer fails to file their withholding returns on time, they can face additional penalties.
Employers must also keep detailed records of all wages paid and taxes withheld, as the Delaware Division of Revenue may conduct audits to ensure compliance.
Employees can adjust their withholding by filing a new Form W-4 with their employer at any time. This is recommended if:
- There is a significant change in personal or financial circumstances (e.g., marriage, the birth of a child, or a new job).
- An employee finds they are either over-withheld (receiving a large refund) or under-withheld (owing money) at tax time.
Employers are required to implement any changes within a reasonable time, usually within one to two payroll periods.