Vermont has a state income tax and state unemployment tax. Employers are required to withhold Vermont’s income tax from employee paychecks but pay state unemployment tax directly to Vermont.
Whether you have a new business or are branching into Vermont, you need to know how to set yourself up to run payroll successfully, ensuring that you pay employees properly and comply with state tax laws. Here’s what to do.
Step 1: Register Your Business in Vermont
Most employers in Vermont need to pay the state’s payroll taxes, which means they’ll also need to be a registered business that’s authorized to withhold taxes.
If you’re an out-of-state employer with even just one Vermont employee, you’ll also need to register to properly withhold Vermont payroll taxes if they have worked from a Vermont location for at least 30 days or work remotely in Vermont.
First, apply for your Federal Employer Identification Number (FEIN) from the IRS. This number identifies your business for taxation purposes, and you’ll need it when registering your company with Vermont’’s tax department.
After registering your business with the state, you can register to file and pay taxes through MyVTax, Vermont’s Department of Taxes online portal.
Step 2: Collect New Hire Paperwork and Report Employees
Vermont requires employers to report new hires within 10 days from their start date. If an employee starts working on the 1st of the month, you need to report their employee information to the state by the 10th. All employees need to be reported with their full name and mailing address, Social Security number, and first date of employment.
You can get this information from federal Form I-9 and Form W-4, both of which not only the federal government requires but also the Vermont government.
You’ll also need to collect Form W-4VT, Vermont’s version of the W-4, from each employee. This form shows withholding allowances for your employees, allowing you to properly calculate how much to withhold from their paychecks for payroll taxes.
Register for an account with the Vermont Department of Labor (DOL) to report all new hires online, which you’ll need to do if you’re reporting more than 10 new hires at once. Otherwise, you can complete Form C-61 and mail it to the Vermont DOL.
Step 3: Calculate Vermont Payroll Taxes
Vermont’s income tax ranges between 3.35% and 8.75% of an employee’s taxable income. You’ll need to calculate each employee’s gross income with allowances to determine which tax bracket they fall into.
Use Vermont’s income tax withholding charts to help you find the correct rate for each employee.
Let’s look at an example of an employee, Richard, who is projected to earn $50,000 this year and has one allowance per his W-4 and W-4VT forms. He gets paid biweekly, making his biweekly gross pay $1,923.07 ($50,000 / 26 pay periods).
Looking at the income tax withholding chart, he would fall into the 3.35% tax bracket.
However, we also have to account for Richard’s one allowance, which the chart says equates to $196.15 for biweekly payroll. $1,923.07 – $196.15 = $1,726.92, keeping Richard in the same tax bracket. You’ll use this number to calculate how much to withhold for Vermont’s income tax.
The chart shows that, with this tax bracket, withholding is $0 plus 3.35% of wages over $142. So, we need to subtract $142 from Richard’s pay of $1,726.92, which equals $1,584.92. This is how much gets taxed at Richard’s rate of 3.35%.
$1,584.92 x 3.35% equals $53.09, making this the amount you withhold from Richard’s paycheck. If Richard’s pay varies each paycheck, be sure to recalculate this amount each pay period.
Calculating Vermont’s unemployment tax is a bit more straightforward, as it won’t vary much between employees.
Vermont only taxes employers based on an employee’s first $13,500 in wages for the year. So, if all your employees earn more than this, you’ll pay the same amount for each of them.
If any earn less, you’ll base your calculation only on what they earn for that year.
New employers usually start with a rate of 1% in Vermont, although experienced businesses can have a rate ranging from 0.4% to 8.4%, which is determined by the state. The state will notify you of your unemployment rate each year.
So, let’s say you have a new employer rate of 1% and have two employees, one earning $50,000 a year and the other working seasonally and earning $10,000 this year.
You’ll owe $135 for the employee making $50,000 a year because you only have to account for their first $13,500 in wages ($13,500 x 1% = $135). However, you’ll owe $100 for the employee earning $10,000. They didn’t reach the threshold of $13,500, so you only pay 1% of what they did earn ($10,000 x 1% = $100).
Step 4: File and Pay Vermont Payroll Taxes
Vermont withholding taxes are paid quarterly, monthly, or semi-weekly. In most cases, businesses file and pay Vermont taxes on the same schedule they are required to file and pay federal taxes.
Quarterly filings are due at the same time you file your quarterly reconciliation, which you do with Form WHT-436. Monthly withholdings are due by the 25th of the month following the month the taxes were collected.
Semi-weekly taxes are due the Wednesday following a Wednesday, Thursday, or Friday pay date or on the following Friday if you pay on another day.
In addition to quarterly reconciliation, all employers also must file an annual reconciliation with Form WHT-434, which is due on the last day of January.
You can complete all of this online via MyVTax for simplicity’s sake.
How to Get Help With Your Vermont Payroll
Even if you have a strong grasp on how to run Vermont payroll, there’s nothing wrong with getting some help, whether it’s to save you some time or prevent small mistakes that can escalate into big problems.
That’s where payroll software comes in, and I can’t stress its importance enough.
The best payroll software manages time clock records, maintains employee records, and calculates the correct amount of taxes for withholding and tax payments for each employee. You’ll save time while reducing miscalculations and taxing errors.
If you only have a couple of employees, running Vermont payroll manually is probably doable, but investing in payroll software early on is one of the best steps you can take for your company. Payroll is easy to get wrong, but payroll software keeps you on the right track.
