The amount of state tax you should withhold depends on your state's tax rates, your income, filing status, and allowances claimed on your W-4 form.
How to Determine State Tax Withholding
- Use your state's tax withholding guidelines or calculator: Many states provide withholding calculators or formulas to help you estimate the right amount. For example, Arizona has a flat tax rate of 2.5% on taxable income for 2023 and beyond, and provides a detailed formula to calculate withholding per paycheck based on your wages and pay periods
- Consider your income and filing status: Your income level and filing status affect your taxable income and therefore how much tax should be withheld. For instance, Georgia has a flat state income tax rate of 5.49% for 2024, with a standard deduction of $12,000 for single filers. You can calculate your taxable income by subtracting deductions from your gross income and then apply the tax rate to estimate withholding
- Use IRS and state withholding tools: The IRS offers a Tax Withholding Estimator to estimate federal tax withholding, which can also help inform your state withholding decisions. For state taxes, check your state's department of revenue website or contact them directly
- Adjust withholding to avoid under- or over-payment: If you withhold too little, you may owe taxes and penalties at tax time. If you withhold too much, you get a refund but lose potential use of that money during the year. Adjust your withholding percentage or additional withholding amounts accordingly
Practical Steps
- Gather your annual gross income and number of paychecks per year.
- Calculate your annual withholding goal based on estimated taxable income and state tax rate.
- Subtract any amount already withheld this year.
- Divide the remaining withholding amount by the number of paychecks left.
- Convert this to a withholding percentage of your wages per paycheck.
- Choose the closest withholding percentage your state allows, and if needed, specify an additional amount to withhold per paycheck.
Example (Arizona)
- Annual gross wages: $52,000
- Paychecks per year: 26
- Tax rate: 2.5%
- Annual withholding goal: $1,800 (approximate)
- Amount already withheld: $600
- Paychecks remaining: 22
Calculate withholding per paycheck:
- Wages per paycheck = $52,000 / 26 = $2,000
- Balance to withhold = $1,800 - $600 = $1,200
- Per paycheck withholding = $1,200 / 22 = $54.55
- Percentage = $54.55 / $2,000 = 2.7%
- Choose 2.5% withholding rate and add $4.55 additional per paycheck to meet goal
Summary
- Use your state's tax rate and deductions to estimate taxable income.
- Calculate withholding per paycheck based on your pay frequency.
- Adjust your withholding percentage or additional amount to match your tax liability.
- Use official tools like IRS Tax Withholding Estimator and your state's withholding calculator.
- Review and update withholding after major life changes or income changes to avoid surprises
If you provide your state, income, filing status, and pay frequency, I can help you estimate a more precise withholding amount.
