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Overview of Delaware Withholding Tax
Delaware withholding tax is a state-mandated tax that employers based in Delaware must withhold from their employees’ wages and remit to the Delaware Division of Revenue.
This tax applies to various forms of compensation, such as wages and salaries, and is applicable to all employees, irrespective of their residency status, provided they meet the following criteria
- The company has an office or conducts business operations within the state of Delaware.
- The wages and salaries in question are payment for services performed within Delaware and are subject to taxation by the state.
Purpose of Delaware withholding tax
The purpose of Delaware withholding tax is to collect income tax revenue from individuals on an ongoing basis, rather than having taxpayers make a lump-sum payment at the end of the year filing their state income tax returns. This system helps ensure that the state government receives a steady stream of revenue to fund various public services and programs.
Employers in Delaware bear the responsibility of withholding the appropriate amount of tax from their employees’ wages and salaries. This withholding is determined based on factors like the number of withholding allowances claimed by employees and the tax rates established by the state.
The withheld tax must be remitted to the state on a regular basis, typically monthly or quarterly, depending on the employer’s specific withholding frequency. Compliance with these requirements ensures that both employers and employees fulfill their tax obligations in accordance with Delaware state tax laws.
Payment and filing time for Delaware Withholding Tax
Delaware withholding tax can be filed on different schedules: quarterly, monthly, or eighth-monthly, and each schedule has its own specific due dates and corresponding return forms.
The due date for filing is the last day of the month following the end of each quarter. Employers are expected to use Form W-1Q (Delaware tax withholding form) for reporting.
The due date is the 15th day of the month following the end of a month. Employers will need to file a Form W-1.
This schedule divides each month into eight payment periods, which end on the 3rd, 7th, 11th, 15th, 19th, 22nd, 25th, and the last day of the month. The due dates for reporting are the 3rd day after the conclusion of each payment period, excluding weekends and holidays. Employers using this schedule should utilize Form W-1A for reporting purposes.
Employers must choose their filing time based on the amount of withholding tax. The bigger the amount, the more frequently employers will need to pay taxes and file reports.
|The withheld amount
|No more than $3,600
|More than $3,600 to $20,000
|More than $20,000
The withheld amount will be assessed in a “lookback period”. This lookback period covers the period from July 1st to June 30th just before the calendar year in question. For instance, when calculating taxes for the year 2020, the lookback period used was from July 1, 2018, to June 30, 2019.
BIG NOTE: If your company is newly established and you hire new employees, you will have to pay Delaware withholding tax and file returns monthly until the next “lookback period”.
Computation of Delaware Withholding Tax
So, how do you know how much you are going to withhold from your employees? The simplest way is to use the withholding tax guide tables published by the Division of Revenue.
Nevertheless, you can self-calculate the Delaware withholding tax according to any approved method. The most common method is based on an annualized basis.
6 steps to self-calculate Delaware withholding tax
Step 1: Determine annual income
If paid daily, multiply the daily wage by 300. If paid monthly, multiply the monthly salary by 12.
Step 2: Find taxable income
Subtract any standard deduction (e.g., $3,250 for a single employee or a married employee filing separately) from the annual income.
Step 3: Compute the payable tax
Use Delaware’s personal income tax rates to calculate the tax owed based on the taxable income.
Step 4: Calculate exemption
Multiply the number of personal exemptions claimed by the employee (if any) by $110.
Step 5: Determine withheld amount
Subtract the exemption amount (from Step 4) from the tax amount (calculated in Step 3).
Step 6: Divide by payroll periods
Divide the resulting tax amount (from Step 5) by the number of payroll periods in a year. This is the amount to withhold from each paycheck.
Let’s break down the computation with an example.
Annie works in Delaware and earns a monthly salary of $1,000.
(1) To calculate her annual salary, we multiply her monthly salary by 12, which equals $12,000.
(2) Next step is to figure out Annie’s taxable income by subtracting the standard deduction from her annual salary. In this case, the standard deduction is $3,250. So, Annie’s taxable income is $12,000 – $3,250 = $8,750.
(3) Determine how much income tax Annie owes based on Delaware’s personal income tax rates. Let’s say her tax liability is $212.25.
(4) Annie is entitled to one personal exemption, which means she can subtract $110 from her tax liability.
(5) Subtract $110 from $212.25, the final amount is $102.25.
(6) Divide the annual withholding amount of $102.25 by the number of payrolls in a year, which is typically 12 (one for each month), the employer should withhold $8.5 per month from Annie’s salary for Delaware withholding tax.
How to stay compliant with Delaware Withholding Tax
Now, you got the concept of Delaware withholding tax. Here are your duties when hiring new employees.
Register for Delaware Withholding Tax
In order to withhold and pay taxes for your employees, you need to register with the Division of Revenue. The Delaware withholding tax registration can be done by submitting the form of Combined Registration Application (for business license and/or withholding agent).
You will have the identification number the same as your Federal Employer Identification Number, for withholding tax purposes.
Obtain W-4 Forms from employees
When hiring new employees, you have to obtain a signed Federal Form W-4 from them. This form notes down the employees’ information, their allowances, and exemptions. It is the base for you to calculate the amount to be withheld from the employees.
Also, you will need to report new hiring to the Division of Child Support Services. The report has to be made no later than 20 days after new employment. You can submit the report (Federal Form W-4 included) by post or electronic filing.
Pay compensations and withhold taxes
At every payroll, you have to withhold taxes from your employees’ wages or salaries, according to the annualized basis or the guiding tables (which have already been discussed above).
You must file appropriate Delaware withholding tax forms and pay the amount upon the deadline according to your specific situation. If your company is freshly new, you must pay monthly and file Form W-1 to the Division of Revenue.
Issue Form W-2 to employees
Prior to 31st January each year, you must issue a Form W-2 to each employee. This form will list the total wages and the withheld amount of each employee in the previous year.
In case employment ends before such a deadline, the form must be given to the employee within 30 days after the last payment.
File an Annual Reconciliation of Returns
Before 28th February each year, you must file a reconciliation of all monthly/quarterly/eighth-Monthly returns in the previous year. This can be done by filing Delaware Form W-3 to the Division of Revenue. You must also attach to such Form WTH-REC all copies of Forms W-2 issued to all employees.
File Form W-2 and 1099
You also need to file W-2 and 1099 forms (1099-MISC, 1099-NEC, or 1099-R) to the Division of Revenue. Generally speaking, Form 1099 NEC is used to report compensations paid to nonemployees, meanwhile, the other forms are used to report other payments (rather than salaries).
The Division of Revenue has just revised the requirements for filing these forms for the year 2021. You can read the details on their website.
You will pay Delaware withholding tax if your company pays compensation to employees for their performances in the state, regardless of whether your company is an LLC or corporation. If your company is freshly established, you need to pay withholding taxes and file a return on a monthly basis.
By the end of February each year, you need to file a reconciliation of all withholding tax returns and submit it to the Division of Revenue. You must issue W-2 forms to all employees and send copies of these forms along with the reconciliation report.
The matters of withholding taxes may extend to the Federal level. Things may get complicated at times. You are advised to consult professionals or your registered agents to stay compliant with both state and federal regulations.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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