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New York Income Tax Withholding Requirements
If your small business has employees working in New York, you ll need to withhold and pay New York income tax on their salaries. This is in addition to having to withhold federal income tax for those same employees. Here are the basic rules on New York state income tax withholding for employees.
Note: Apart from New York state tax withholding, New York City and Yonkers also have taxes subject to withholding, which are not specifically covered in this article.
Get an EIN
With rare exceptions, if your small business has employees working in the United States, you ll need a federal employer identification number (EIN). You should obtain your EIN as soon as possible and, in any case, before hiring your first employee. EINs are issued by the IRS and you ll need one first and foremost for federal taxes. In addition, some states use the federal EIN for state withholding tax purposes. Other states (like New York) issue separate state tax ID numbers. You ll need an EIN to register with the state (see below). You can apply for an EIN at the IRS website (www.irs.gov ). Generally, if you apply online, you will receive your EIN immediately.
Register With the Department of Labor
Apart from your EIN, you also need to establish a New York withholding tax account with the state. Most other states require employers to register with a Department of Revenue (or equivalent agency) for this purpose. New York, however, instead requires employers to register with the state s Department of Labor (DOL). You can register online or on paper. However, the DOL has been moving toward only accepting online registrations so you should check the DOL website before submitting a registration on paper. To register online, go to the DOL s Employer Registration webpage. To register on paper, complete Form NYS-100, New York State Employer Registration for Unemployment Insurance, Withholding, and Wage Reporting. You can submit Form NYS-100 by regular mail or by fax.
It takes the DOL 4-6 weeks to process a registration and assign an account number. There is no fee to register your business with DOR.
Have New Employees Complete Withholding Tax Forms
All new employees for your business must complete a federal Form W-4 and should also complete the related New York Form IT-2104, Employee’s Withholding Allowance Certificate. (If employees don t complete the New York form, an employer can use the federal form, which can result in the wrong amount of state tax withheld.) You can download blank Form IT-2104s from the withholding tax forms section of the website for the Department of Taxation and Finance (DOTF or Tax Department). You should keep the completed forms on file at your business and update them as necessary.
Report New Hires to the Tax Department
In addition to having new employees complete the federal and state withholding forms, you also should report new hires to the DOTF. You can report new hires, as well as find more information about the reporting process, at the state s new hire website .
Make Scheduled Withholding Tax Payments
In New York, you must make a withholding tax payment after any payroll that causes the total accumulated tax withheld to equal or exceed a threshold dollar amount. In other words, the more you withhold, the more frequently you ll need to make withholding tax payments. (Unlike many other states, New York does not have a fixed set of payment schedules, such as weekly, monthly, and/or quarterly, but instead requires payments whenever the amount withheld meets or exceeds the threshold.)
The specific threshold amount leading to a required payment, as well as other rules, may change over time, so you should check with the DOTF at least once a year for the latest information.
The due date for a payment varies based on amounts withheld in prior years:
- If you were required to withhold at least a certain threshold dollar amount for the calendar year that precedes the previous calendar year, you must pay within three business days following the payroll that caused the total accumulated tax withheld to equal or exceed the payment requirement threshold.
- If you were required to withhold less than the threshold dollar amount for the calendar year that precedes the previous calendar year, you must pay within five business days.
The Tax Department will notify you of any change to your filing due date (three or five business days after the payroll) based on its record of your total tax withheld. New employers are permitted to file returns and pay taxes withheld within five business days until notified otherwise by the Tax Department. If the payment due date falls on a Saturday, Sunday, or legal holiday, you are permitted to file on the next business day.
Most employers are required to make payments online using the DOTF s Web File system. You can find out more about the options for online filings, including Web File, by going to the Businesses section of the DOTF website and looking for Online Services. Employers permitted to file on paper use either Form NYS-1, Return of Tax Withheld (for payments other than those made at the end of calendar quarters), or Form NYS-45, Quarterly Combined Withholding, Wage Reporting, And Unemployment Insurance Return (only for payments made at the end of calendar quarters). Special rules apply when payment due dates overlap with the end of calendar quarters.
For more information on calculating how much tax to withhold, which forms to file, and various special payment rules, check the current version of DOTF publications NYS-50, Employer s Guide to Unemployment Insurance, Wage Reporting, and Withholding Tax. and NYS-50-T-NYS, New York State Withholding Tax Tables and Methods. Both of these publications are updated at least once a year. You can download each of them from the withholding tax forms section of the DOTF website.
File Scheduled Withholding Tax Returns
Apart from making scheduled tax payments, businesses also must file quarterly withholding tax returns. The returns reconcile the tax paid for the quarter with the tax withheld for the quarter. Most employers are required to file online using the DOTF s Web File system. Employers permitted to file on paper use Form NYS-45, Quarterly Combined Withholding, Wage Reporting, And Unemployment Insurance Return. You can download a blank form NYS-45 from the withholding tax forms section of the DOTF website. You must file a quarterly return regardless of whether any tax was withheld during the quarter.
Quarterly returns are due on or before the last day of the month following the close of the quarter:
- first quarter (January March) is due April 30
- second quarter (April June) is due July 31
- third quarter (July September) is due October 31, and
- fourth quarter (October December) is due January 31.
As with tax payments, if the payment due date falls on a Saturday, Sunday, or legal holiday, you are permitted to file on the next business day.
No New York Annual Reconciliation
The federal government and many other states require employers to file an annual reconciliation after the end of the year. (For the federal government, this generally is IRS Form W-3 with copies of Form W-2s included.) The annual reconciliation, where required, is in addition to the requirement to provide each of your employees with a federal form W-2 summarizing the employee s withholding for the year. New York, however, currently does not require you to file an annual reconciliation apart from the required quarterly reports (Form NYS-45).
Independent Contractors are Not Employees
This article is only concerned with employees. not independent contractors. In general, different tax rules apply to independent contractors.
Using Payroll Service Companies
You may decide that it s easiest to hand over responsibility for payroll, including withholding taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.
This article touches on the basic elements of New York employee withholding taxes. Under New York law, any person such as an owner or employee of a business who is required to deduct, account for, and pay income tax withheld who fails to collect, account for, and pay that tax, will be liable for a penalty. Avoid possible penalties for making mistakes by checking both the IRS and DOTF websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.com.