State Income Tax Withholding by State
How does State Income Tax Withholding Vary by State?
State income tax withholding requirements vary significantly: most states require it, nine currently have no state income tax, and some states—like Pennsylvania—layer on local withholding as well, making multi-state payroll one of the more error-prone compliance areas.
Beyond the nine states with no personal income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming), every other state requires withholding using its own version of a W-4-style form and withholding tables, updated independently of federal tables. Some states also require local income tax withholding—Pennsylvania and Ohio are well-known examples.
The compliance question that trips up growing businesses most often is determining which state’s rules apply to a remote or traveling employee—generally the state where work is physically performed, though some states have reciprocity agreements.
State Income Tax Withholding Key Facts and Multi-State Rules:
- Nine states have no personal income tax and therefore no state withholding requirement on wages.
- Some states (e.g., Pennsylvania, Ohio) require additional local income tax withholding.
- Withholding generally follows where work is physically performed, not the employer’s or employee’s home state.
- A limited number of states have reciprocity agreements for cross-border commuters.
Frequently Asked Questions
Which states have no state income tax withholding?
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Which state's rules apply for a remote employee?
Generally the state where work is physically performed, though reciprocity agreements can change this.
Can local income tax withholding apply on top of state withholding?
Yes—states like Pennsylvania and Ohio require it.
How often do states change their minimum wage or withholding rates?
It varies—some states adjust minimum wage annually for inflation, while others require legislative action, so employers should check state agency updates regularly.
Does a reciprocity agreement eliminate the need to withhold for the work state?
Yes—where a reciprocity agreement exists, employers generally withhold only for the employee’s resident state instead of the work state.
Related terms: Payroll Tax Withholding, Multi-State Payroll, Minimum Wage by State