States Use of Federal Form W-4

At-a-Glance

• As of 2019, seven states utilize the Federal Form W-4 (Withholding Allowance Certificate) to determine the proper amount of withholding for State Income Tax withholding purposes.
• The 2020 changes to the Federal Form W-4 captures data not previously required such as “Head of Household” filing status, and Dependent Credits in dollars as opposed to a number of allowances or exemptions. 
• States will either need to develop an independent form or update withholding procedures to incorporate the changes to the 2020 Federal Form W-4.
• This article will provide insights into the current direction these states are taking to address this issue.

Impacted States 

 There are currently seven states which utilize the Federal Withholding elections declared on the Federal Form W-4 for state tax purposes.  

• Colorado
• Delaware
• Nebraska
• New Mexico
• North Dakota
• South Carolina
• Utah

These states currently direct employers to use the same filing status and exemptions as declared on the Federal Form W-4 to calculate state income tax withholding with special procedures allowed in the event employees require a different election for State vs Federal withholding such as non-resident status or military spouse. 

States Adopting 2020 Federal W-4 

Of the seven states mentioned above, Colorado, New Mexico, North Dakota, and Utah have indicated they will adopt the new Federal W-4 for State purposes. In order to incorporate the new W-4, these states are making changes to their withholding tables and instructions to account for employees declaring “Head of Household” filing status and to address differences in Federal Dependent Credit rates vs. State allowances or exemptions. 

These states have communicated their intent and are actively working to publish updates to address the required changes. North Dakota, Utah, and Colorado have already updated their withholding instructions to work with the new Federal W-4, while New Mexico is hoping to have updated instructions before the end of 2019. 

Until further direction is provided by these states, it is recommended to continue using the existing W-4 for these states until new instructions are available. 

States Developing Independent Forms 

The remaining three states are planning on developing their own forms in order to continue allowing for allowances and or exemptions that have been removed from the 2020 Federal form. These states include Delaware, Nebraska, and South Carolina. 

Nebraska has already developed its own state form which can be found here. 

South Carolina has also developed its own state form.

As you can see in the example provided, Nebraska and South Carolina’s new forms mirror the existing 2019 W-4 almost identically. We anticipate the remaining state forms to be structured similarly. Delaware and South Carolina have not provided a timeline for the publishing of their state forms, but hopes are that the new forms will be available by the end of 2019. 

Until further direction is provided by these states, it is recommended to continue using the existing W-4 for these states until new forms are available. 

Summary 

The information in this article is current as of December 16, 2019. Due to the complexity of the required change and the late publishing of the final Federal Form, states have delayed acting to update their withholding regimes until the final Federal form and corresponding withholding tables are finalized. Now that the Federal form has been published, we anticipate more information will be provided by these states in the coming weeks. We are continuing to monitor the situation and will provide updates and direction as it becomes available and will update our systems accordingly. 

Thank you for choosing Paylocity as your Payroll Tax partner.  

This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.