If your small business has employees working in North Dakota, you’ll need to withhold and pay North Dakota 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 North Dakota 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 North Dakota) issue separate state tax ID numbers (which generally is the EIN followed by a two-digit suffix). 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 North Dakota withholding tax account with the North Dakota State Tax Commissioner (STC). You set up your account by registering your business with the STC either online or on paper. To register online, use the STC’s Taxpayer Access Point (TAP) and choose the option to Apply for Withholding. To register on paper, use Form SFN 59507, Application for Income Tax Withholding and Sales & Use Tax Permit. You can submit Form SFN 59507 by regular mail or by fax. Your account should be set up within 1-2 weeks. There is no fee to register your business with STC.
All new employees for your business must complete a federal Form W-4. Unlike some other states, North Dakota does not have a separate state equivalent to the W-4, but instead relies on the federal form. If an employee claims exempt status on Form W-4, the exempt status is recognized for North Dakota income tax withholding purposes. If an employer is required to submit a copy of Form W-4 to the IRS, the employer also must submit a copy of the form to the STC. You can download blank Form W-4s from the IRS. Clearly label W-4s used for state tax withholding as your state withholding form. Keep the completed forms on file at your business and update them as necessary.
In North Dakota, most employers pay withholding taxes on a quarterly basis. New employers are assigned a quarterly payment schedule when they register with the STC. Employers are required to pay quarterly unless otherwise notified by the state. In rare cases, an employer may be allowed to file and pay annually rather than quarterly.
Employers file quarterly returns at the same time they make their quarterly payments. The quarterly return can be filed on paper or online. If you are filing on paper, the STC will send you preaddressed forms in advance of the filing due dates, and you will use Form 306, Income Tax Withholding Return.
You must receive STC approval to file online. If you are approved to file online, the STC will provide timely reminders instead of preaddressed forms. To file online, you can use either the STC’s Taxpayer Access Point (TAP) or Withholding E-File system. You can register for either method online at the TAP website, or, for Withholding E-File only, mail in Form 301EF (available from the withholding tax forms section of the STC website).
Payments and returns are due the last day of the month following the end of each quarter:
If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day.
The STC provides several different methods for calculating how much tax to withhold. For more information, check the STC publication Rates & Instructions For Wages Paid for the current year. You can also find additional important information from the current version of the STC publication Guideline: Income tax withholding, which is updated each year. You can download both publications from the withholding tax publications page 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. Use Form 307, Transmittal Of Wage And Tax Statement. You should receive a preaddressed Form 307 from the STC in advance of the due date. You can also download blank forms from the withholding tax forms section of the STC website.
You should attach copies of the federal W-2s sent to all of your employees working in North Dakota. Larger employers must submit W-2s electronically. Form 307 generally is submitted by regular mail. However, you do not need to send Form 307 by mail if you submit W-2s electronically.
The annual reconciliation is due on or before the last day of February. As with payments and quarterly returns, if the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day
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 the basic elements of North Dakota employee withholding taxes. Under North Dakota law, officers of corporations, and manager and members of LLCs, who control or are responsible for filing withholding tax returns and payments are personally liable for the business’s failure to file or pay. 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.