All successful payroll runs start with payroll compliance, which requires you to know your state’s payroll tax laws.
Like most other states, Delaware has an income tax and state unemployment tax that employers must pay. If your employees are subject to Wilmington’s income tax, you must also withhold and pay it for them.
Before you jump into running payroll in Delaware, catch yourself up with the state’s payroll laws and requirements to make sure you’re doing it correctly.
4 Steps to Set Up and Run Delaware State Payroll
Step 1: Register as a Delaware Employer
Delaware One Stop is the place to go if you’re a Delaware employer needing to register as an official business within the state. Use this to get your employer registration number and relevant licenses and learn everything you need to know about becoming a legitimate Delaware employer.
Once you register your business, you’ll receive a Withholding Tax Account Number from the Delaware Division, which you’ll need to include on your withholding tax filings and payments.
To pay the state’s unemployment tax, register with the Delaware Department of Labor (DOL) through the Online Employer Services portal.
This gives you an unemployment account number to use when you file and pay your state unemployment tax, along with the current tax rate assigned by the Delaware DOL.
Step 2: Collect and Submit Employee Forms
After you hire a new employee in Delaware, you need to report them to the Delaware State Directory of New Hire Reporting within 20 days. This enters them into the state database for taxation and child support purposes.
Delaware allows electronic reporting via the state directory’s online form or using your payroll software to upload the information into the system.
To begin reporting new hires, register with the state directory. For reporting, you’ll need your employee’s legal name, address, Social Security number, and date of hire.
At the same time you collect this information from your new hire, make sure you’re getting the information you’ll need for taxing, too.
In addition to federal forms I-9 and W-4, you also need your employee to fill out Form DE-W4, Delaware’s version of the W-4 needed for managing their tax withholdings.
Step 3: Withhold and File State and Local Taxes
Delaware’s income tax ranges from 2.2% to 5.55% for income under $60,000 and has a set rate of 6.6% for income $60,000 or higher.
Because the employee pays this tax, the employer withholds it from their paychecks. You’ll have to calculate the right amount of withholding based on the employee’s expected taxable income and withholding allowances on their DE-W4.
Delaware offers tax rate tables to make calculations easier, and they include the state’s withholding allowance of $110 per allowance.
As an example, let’s say an employee getting paid biweekly earns $1,500 in taxable wages per pay period and has two allowances. Using the biweekly tax rate table, their withholding for one pay period would be $54.37.
However, if the employee earns at least $2,900 in a pay period, Delaware advises using an annual calculation instead. In the following steps, we’ll use the same employee as an example to demonstrate how to use this method:
- Multiply the employee’s gross pay for the pay period by the number of pay periods. For this example, we’d multiply $1,500 by 26, giving us $39,000 in annual income.
- Subtract the standard deduction ($3,250 for single taxpayers or married filing separately and $6,500 for married filing jointly). We’ll say this employee is single, so their income becomes $35,750.
- Use this figure to find the employee’s tax rate, which you can find on Section 17 of this employer’s guide. This employee gets taxed at 5.5%, paying $1,001 plus 5.5% of anything over $25,000.
- $35,750 – $25,000 = $10,750
- $10,750 x 0.055 = $591.25
- $591.25 + $1,001 = $1,592.25
- Since the employee has two exemptions, they have a $220 personal exemption credit (each is worth $110 in Delaware).
- Subtract their credit from their total computed tax: $1,592.25 – $220 = $1,372.25
- Divide this figure by the number of pay periods to find the amount of tax to withhold per pay period: $1,372.25 / 26 = $52.78.
Delaware employers file and pay withholding tax on eighth-monthly, monthly, or quarterly schedules based on how much tax they withhold in a lookback period:
- Eighth-monthly if withholding taxes was more than $20,000
- Monthly for withholding of $3,600 to $20,000
- Quarterly, if under $3,600 was withheld
Use Delaware’s withholding calendar for 2024 to see when your taxes are due for your schedule.
In addition to income tax withholding, you also need to withhold Wilmington’s income tax if your employees live or work in Wilmington, the state’s only jurisdiction with an income tax.
This is a flat rate of 1.25%. So, our employee making $1,500 for this pay period is subject to a Wilmington tax of $18.75 ($1,500 x 0.0125) for that pay period if they live or work in Wilmington.
Wilmington tax is due quarterly on the 15th of April, July, October, and January, and payments must be made either in person or by phone.
Step 4: File and Pay the Delaware Unemployment Tax
Unemployment insurance in Delaware is partly supported by the state’s unemployment tax, which is employer-paid and not withheld from employee paychecks.
Delaware’s new employers begin with an unemployment tax rate of 1.2% in 2024. However, the rates for established employers have decreased in 2024 from 0.3-8.2% to 0.1-5.4%.
Currently, the wage base for the state is $10,500, so you’ll only pay this tax based on the first $10,500 an employee makes each calendar year.
So, as a new employer, the max you’d pay for each employee every year is $126 ($10,500 x 0.012). If your tax rate increases to 3% after a review, you’ll pay $315 per employee who earns at least $10,500 ($10,500 x 0.03).
Delaware notifies you when your rate changes, and you’ll need to start using your new rate by the effective date.
Pay this tax quarterly by the end of the month following the quarter’s ending. So, the fourth quarter ending in December would have tax due by January 31st. Failure to pay on time in Delaware can give you a delinquent rate of 6.5%.
The Best Way to Run Delaware State Payroll
Avoid getting lost in the shuffle of trying to remember all Delaware payroll laws in addition to state-specific PTO laws, PTO payout laws, minimum wage laws, etc. If you have the right payroll software, you can have most of this taken care of for you.
Payroll can be complicated when you run it manually. Even if your employees aren’t subject to Wilmington’s income tax, you still need to keep yourself updated with Delaware’s income tax and unemployment tax to run payroll correctly.
Add in payroll software, and the tool will do most tasks for you automatically, from updating income tax rates to calculating each employee’s withholdings. Some payroll software even sends in your tax payments for you by their deadlines.
If you have one or two employees and payroll software is out of the budget, you can get by with running payroll manually. But as soon as you can afford to, consider making payroll software part of your team.
If you’re not sure where to start, check out our comprehensive guide to the best payroll software and services for businesses of all sizes.
