If your small business has employees working in Maine, you’ll need to withhold and pay Maine 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 Maine 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 Maine) 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. Generally, if you apply online, you will receive your EIN immediately.
Apart from your EIN, you also need to establish a Maine withholding tax account with Maine Revenue Services(MRS). You set up your account by registering your business with MRS. You can register online (check the Useful Links section of the MRS homepage) or on paper (using Maine Revenue Services and Department of Labor Application for Tax Registration). There is no fee to register your business with MRS.
All new employees for your business must complete both a federal Form W-4 and the related Maine Form W-4ME,Employee's Withholding Allowance Certificate. You can download blank Forms W-4ME from the tax forms section of the MRS website. You should keep the completed forms on file at your business and update them as necessary.
In Maine, there are two possible withholding tax payment schedules: semiweekly or quarterly. You should receive information about what schedule to use when you register your business with Maine Revenue Services. Currently, whether you should file quarterly or semiweekly during a current calendar year depends on the amount of Maine income tax withholding you reported during the 12-month period ending the preceding June. If the amount is less than a specified dollar amount (most recently in the low five-figure range), you’ll file quarterly. If it equals or exceeds the specified dollar amount, you’ll need to file semiweekly.
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 DOR at least once a year for the latest information.
Due dates for payments are as follows:
If the payment is due on a Saturday, Sunday, or holiday, the due date is the next business day.
As of 2015, you must make payments electronically if your annual payments to MRS for all taxes combined exceed a certain, relatively low dollar amount. For this reason, MRS no longer automatically mails payment forms to employers. However, if you need to file on paper, you can download Form 900ME, Payment Voucher for Maine Income Tax Withheld from the MRS website. You can make online payments through either Maine EZ Pay or through an electronic funds transfer, both available from the Electronic Services page of the MRS website.
MRS provides several different methods for calculating how much tax to withhold. For more information, check the MRS website for the latest version of the publication Withholding Tables for Individual Income Tax. The publication is updated each year.
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. As of 2015, you should file this return electronically. (You may request a waiver from this requirement, in which case you may be allowed to use Form 941ME, Employer’s Return of Maine Income Tax Withholding.) You can file online through the Electronic Services page of the MRS website.
Quarterly returns are due the last day of the month following the end of the calendar quarter, even if there is no withholding tax to report. In other words:
As with tax payments, any return due date that falls on a Saturday, Sunday, or holiday is adjusted to the next business day.
After the end of the year, you must file an annual reconciliation with the MRS 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. As of 2015, you should file the annual reconciliation electronically. (You may request a waiver from this requirement, in which case you may be allowed to use Form W-3ME, Reconciliation of Maine Income Tax Withheld.) You can file online through the Electronic Services page of the MRS website. The annual reconciliation is due by February 28.
You may need to include copies of Federal W-2s with your annual reconciliation. MRS does not accept paper copies of W-2s. For more information, check the MRS website.
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, can still be held directly responsible for mistakes made by an outside payroll company.
This article touches on only the basic elements of Maine employee withholding taxes. Under Maine law, the owner(s) and person(s) who control the finances of a business may be liable for any unpaid withholding tax. Avoid possible penalties for making mistakes by checking both the IRS and MRS websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.com.