Vermont Withholding laws & HR compliance analysis

Vermont Withholding: What you need to know

The Vermont income tax law requires that employers withhold state income tax from the wages of resident and nonresident employees. Withholding applies to compensation paid by employers to employees including salary, bonus, vacation allowance, and commission. Vermont generally applies federal law to determine whether withholding is required on fringe benefits such as deferred compensation plans and cafeteria plan contributions. Vermont has conformed its tax law to the amendments made to the Internal Revenue Code by the federal healthcare reform law and subsequent Internal Revenue Service rules. As a result, the cost of employer-provided coverage for dependent children is tax free through the end of the year in which the child turns 26.
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Determining income tax withholding. Employers should have all employees complete Form W-4VT. Employers may use the information from federal Form W-4 if no Vermont form is submitted. If a federal W-4 used for state withholding indicates an additional amount of federal withholding for each pay period on Line 6, Vermont withholding should be increased by 27 percent of the extra federal withholding. Employees who have adjusted their federal withholding in anticipation of Child Tax Credit or other credits that do not affect Vermont tax and employees who have entered into civil unions will not have the correct Vermont tax withheld unless they complete Form W-4VT.
Determining income tax for civil union members. Vermont income tax of a civil union partner is computed in the same manner as if the partners were married. An employee in a civil union may use a W-4VT form to show the filing status and number of withholding allowances that result in the correct Vermont tax. As with ...

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