If your small business has employees working in Wisconsin, you’ll need to withhold and pay Wisconsin 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 Wisconsin 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 Wisconsin) 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 Wisconsin withholding tax account with the Wisconsin Department of Revenue (DOR). You set up your account by registering your business with the DOR either online or on paper. To register online, go to the Starting a Business page of the DOR website. In many cases, you will end up being directed to the OneStop Business Portal, which registers a business with multiple state agencies. If you register online, you should receive an account the same day. To register on paper, use Form BTR-101, Application for Wisconsin Business Tax Registration. Submit Form BTR-101 by regular mail. If you register on paper it can take approximately 15 days for the DOR to process your application. There is no fee to register your business with the DOR for withholding only (other types of registration incur a fee).
All new employees for your business must complete a federal Form W-4. New employees also must complete the related Wisconsin Form WT-4, Employee’s Wisconsin Withholding Exemption Certificate/New Hire Reporting (unless they are claiming the same number of withholding exemptions for federal and state purposes). You can download blank Form WT-4s from the Withholding Tax Forms section of the DOR website. You should keep the completed forms on file at your business and update them as necessary.
In Wisconsin, there are four possible payment schedules (filing frequencies) for withholding taxes: semi-monthly, monthly, quarterly, or annually. Your payment schedule ultimately will depend on the average amount you withhold 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 DOR at least once a year for the latest information.
Here are the due dates for the various payment schedules:
If the payment is due on a weekend or holiday, the due date is extended to the next business day.
By default, each employer is required to submit payments and associated deposit reports electronically. Some employers may apply for and be granted a waiver from electronic filing, in which case they can file on paper. Semi-monthly, monthly, and quarterly payers use Form WT-6, Withholding Tax Deposit Report, when making payments. Annual payers use Form WT-7, Employers Annual Reconciliation. There are multiple options to file deposit reports and payments electronically:
You can download blank deposit report forms from the Withholding Tax Forms section of the DOR website. You must file a report for each due date even if no tax due.
The DOR provides several different methods for calculating how much tax to withhold. For more information, check the current version of DOR Publication W-166, Wisconsin Withholding Tax Guide, available from the Withholding Tax Forms section of the DOR website.
After the end of the year, you must file an annual reconciliation with the DOR 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 with deposit reports filed during the year, employers are required to file the annual reconciliation electronically, unless they apply for and receive a waiver from the DOR. Use Form WT-7, Employers Annual Reconciliation. Electronic filing options include:
You should include copies of the federal W-2s sent to all of your employees working in Wisconsin with your annual reconciliation. Large employers are required to file these W-2s electronically using one of several DOR-approved methods. Small employers are encouraged to file W-2s electronically, but also may submit them by regular mail.
The annual reconciliation is due by January 31st. As with payments and deposit reports, if the due date falls on a weekend or holiday, it 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 only the most basic elements of Wisconsin employee withholding taxes. Under Wisconsin law, a person required to collect, account for, or pay withholding taxes, who willfully fails to collect, account for, or pay those taxes, may be held personally liable for the taxes, including interest and penalties. Avoid possible penalties for making mistakes by checking both the IRS and DOR websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.