If your small business has employees working in Idaho, you'll need to withhold and pay Idaho 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 Idaho state income tax withholding for employees.
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 Idaho) 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 IRS.gov. Generally, if you apply online, you will receive your EIN immediately.
Apart from your EIN, you also need to establish an Idaho withholding tax account with the Idaho State Tax Commission (STC). You set up your account by registering your business with the STC either online or on paper. To register online, go to the Idaho Business Registration (IBR) Information page on the STC website. To register on paper, use Form IBR-1, Idaho Business Registration Form. You can download a blank form from the STC website or call the STC to request one. There is no fee to register your business with the STC.
All new employees for your business must complete both a federal Form W-4. Unlike many other states, Idaho does not have a separate state equivalent to Form W-4, but instead relies on the federal form. You can download blank Forms W-4 from the IRS. Clearly label W-4s used for state tax withholding as your state withholding form. You should keep the completed forms on file at your business and update them as necessary.
In Idaho, there are four possible payment schedules for withholding taxes: semimonthly, monthly, quarterly, or annually. Your payment schedule ultimately will depend on the average amount you withhhold from employee wages over time. The more you withhold, the more frequently you'll need to make withholding tax payments.
The exact threshold dollar amounts for the different payment schedules, as well as other rules, may change over time, so you should check with the STC at least once a year for the latest information.
The due dates for the various payment schedules are as follows:
If a due date falls on a weekend or holiday, the payment is due on the next business day.
You can make payments on paper (by check) or electronically. For payments made on paper, the STC will send you a booklet of preprinted payment vouchers (Form 910). This form is also sometimes called a withholding return. Blank forms are not available online, you must contact the STC and provide verification if you need to obtain additional copies. You must submit a completed Form 910 with your payment check. You also must submit a Form 910 even if you withheld no taxes for a payment period.
You can pay electronically using any of the following methods:
You can find more information about all three of these electronic payment methods by going to tax.idaho.gov/epay. Very high withholding tax payments must be made using electronic funds transfer (EFT). If paying electronically, you do not need to submit Form 910. In general, to file and pay online, use the STC's Taxpayer Access Point (TAP)
The STC provides several different methods for calculating how much tax to withhold. For more information, check the current version of the STC publication A Guide to Idaho Income Tax Withholding. The guide is updated every year. You can download a copy from the income tax withholding section of the STC website.
After the end of the year, you must file an annual reconciliation with the STC that summarizes the employee taxes you've withheld during the year. The annual reconciliation is in addition to providing each of your employees with a federal Form W-2 summarizing the employee's withholding for the year. You can file the annual reconciliation online or on paper. Use Form 967, Idaho Annual Withholding Report. You must include copies of the W-2s sent to all of your employees working in Idaho with your filing. To file online, use the STC's Taxpayer Access Point (TAP). If you are required to file W-2s electronically with the IRS, in most cases you also must file W-2s electronically with the state. The annual reconciliation is due on or before the last day of February.
This article is only concerned with employees, not independent contractors. In general, different tax rules apply to independent contractors.
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 only the most basic elements of Idaho employee withholding taxes. Under Idaho law, officers, members, or employees of a business who have a duty to collect and pay taxes can be held personally liable for failing to collect or pay withholding taxes. Avoid possible penalties for making mistakes by checking both the IRS and STC websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.com.