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Division of
Revenue

Employer’s Guide (Withholding Regulations and Employer’s Duties)


Withholding Regulations and Employer’s Duties


Important Note: The following pages are an electronic reproduction of the Withholding Rules and Regulations Booklet – some changes that appear on the electronic version may not be the same as the written version, if you have any questions please contact Revenue’s Withholding Department at (302) 577-8778 or bustax@state.de.us for clarification.

Section 1151 of Title 30 of the Delaware Code requires every employer who;

  • maintains an office or transacts business within Delaware, and
  • who makes payments of wages or other remuneration to residents or non-residents which are taxable in Delaware and which are subject to withholding under the Internal revenue Code;

must withhold from those wages or remuneration an amount substantially equivalent to the tax estimated to be due from the employee. The Delaware Code does not specifically define the terms “wages” or “other remuneration” which are subject to withholding. Delaware withholding is required provided such payments are subject to withholding under the Internal Revenue Code.

Every employer required to deduct and withhold tax shall file a withholding tax return as prescribed and pay over to the Division of Revenue or to its depository the tax required to be deducted and withheld. Returns and payments are due quarterly, monthly or eighth monthly based on the filing method defined by the statue. The filing method is determined by using a “lookback period” between July 1 and June 30 immediately preceding the calendar year for which the lookback period is determined. The lookback period for calendar year 2000 withholding will be the period July 1, 1998 through June 30, 1999. The Division of Revenue will determine annually the amount of tax reported during the respective lookback period and mail to withholding agents the appropriate vouchers to remit amounts withheld. The withholding methods and thresholds are listed below:

Withholding During Filing Methods Lookback Period

QUARTERLY $3600 OR LESS

MONTHLY $3600.01 AND LESS THAN $20,000

EIGHTH MONTHLY $20,000.01 AND GREATER

Please note: All withholding agents having no prior record of withholding, will file on a monthly basis until the next “lookback period”.

An employer may rely upon the number of Federal withholding exemptions claimed by the employee, or as provided by Section 15 of these regulations (Withholding Exemptions and Allowances).

An employer is any person or organization for whom an individual performs any services as an employee. It includes any person or organization paying wages to a former employee after termination of his employment.

For purposes of income tax withholding, the term “employer” includes organizations that may be exempt from the income tax, such as religious and government organizations, and that may or may not be exempt from social security and Federal unemployment taxes.

(a) Registering to Withhold Income Taxes
(b) Request for Forms
(c) Hiring New Employees – Form W-4,W-4A, or SD/W4A
(d) Reporting New Hires
(e) Payment Compensation to an Employee
(f) Statement of Compensation Earned – Form W-2
(g) Annual Reconciliation of Withholding Tax Returns
(h) Reporting of Employees’ Annual Wage Data

Important Note: Please see our W-2 and 1099 reporting FAQs for revised filing requirements.

(i) Common Paymaster
(j) Reporting of 1099 data


 

(a) Registering to withhold Delaware Income Taxes

Delaware Law requires that every employer register with the Delaware Division of Revenue. Registration is accomplished by completing Delaware form Combined Registration Application (CRA).

Delaware Withholding agents will be assigned the same identification number as their Federal Employer Identification Number. If a Withholding Agent does not have a Federal Employer Identification Number, complete Federal Form SS-4 which is available from the nearest Internal Revenue Service office. After you have completed the form you can call the IRS office and receive your Federal Identification Number by phone. After you have received your Federal Identification number, complete the CRA form or contact our Business Master File Section at (302) 577-8778.

(b) Request for Forms

If you are a new business, your initial withholding tax return is located in the Combined Registration Application package. Please use this initial form to remit your first withholding payment. If you do not receive your booklet within four (4) weeks after making your payment, please notify the Business Master File Section. Remember that all new employers are required to file their withholding returns on a monthly basis. If your business is already established and you have our coupon booklet, but need changes to your federal identification number and/or your address, please use the Request for Change coupon contained in the booklet identifying the type of change. Please note we do not issue new booklets for address changes as your remittances are recorded by your federal identification number. However, the respective maintenance is preformed on the Master File for your account in preparation for the next mailing of Division materials. If forms are not available to enable timely filing, you should send a letter with remittance to: BUSINESS MASTER FILE SECTION, DELAWARE DIVISION OF REVENUE, P.O. Box 8750, Wilmington, Delaware 19899-8750, indicating:

  • Federal Identification Number
  • Name and Address of Company
  • Tax Period Ending (Please indicate if the return is a monthly or quarterly return.)
  • Name and telephone number of person responsible for filing returns

(c) Hiring New Employees – Form W-4 or W-4A

Obtain from each employee a signed withholding Federal Form W4, W4A or Delaware form SD/W4A or W-4NR at the time of employment. (See Section 15 regarding Withholding Exemptions and Allowances)

(d) Reporting of New Hires

Delaware Law requires that every employer who is required to withhold Delaware income tax from its employees is also required to report the hiring of new employees to the Division of Child Support Services. The report must be made within 20 days of hiring the new employee(s) and must contain the employee’s name, address and social security number as well as the employee’s date and state of hire. In addition, the name, address and federal employer identification number (FEIN) of the employer is also required. The report may be made using federal form W-4 or an equivalent form of your choice. The report may be in paper and mailed to Delaware State Directory of New Hires, P.O. Box 90370, Atlanta, GA 30364 or faxed to (855) 481-0047. Reports may be made by electronic or magnetic media and a multistate employer may elect to report to one state. For more information concerning multistate or electronic filing, visit DCSS’s website at http://newhire.dhss.delaware.gov or call the Division of Child Support Services at (302) 577-7171.

(e) Payment of Compensation to an Employee

Withhold tax from each payment of compensation in accordance with the employee’s exemption certificate and the applicable withholding rate tables reflected in the back of this circular or on the basis of any other formula approved by the Director of the Division of Revenue.

File a return with the Division of Revenue and pay full amount of tax withheld on the required filing dates.

(f) Statement of Compensation Earned – Form W-2

All employers are required to supply each employee a withholding statement on Form W-2, showing total wages and amount of Delaware income tax withheld. This statement must be provided to the employee on or before January 31 of each year reporting the wages paid during the preceding year, or if the end of employment is prior to that date, not later than thirty days after the last payment of wages.

(g) Annual Reconciliation of Withholding Tax Returns

Every employer must file a Reconciliation of Income Tax Withheld for each year. All employers are required to submit an Annual Reconciliation/Transmittal of Income Tax Withheld by filing Form W-3 along with a duplicate copy of Federal Form W-2 indicating the amount of Delaware tax withheld from each employee. Form W-3 is due on or before February 28th of each year reporting withholding amounts for the preceding calendar year.

(h) Reporting of Employees’ Annual Wage Data

Please see our W-2 and 1099 reporting FAQs.

(i) Common Paymaster

The Division will not accept the remittance of withholding taxes by a common paymaster on a single return for multiple employers. Each employer who withholds Delaware tax must report the amount withheld under its federal identification number and file an annual reconciliation.

(j) Reporting of 1099 data

Any organization required to report Federal Form 1099 series returns must provide to Delaware information for the following payments:

  1. All payments to Delaware residents, which are reported on either form 1099MISC or form 1099R; and
  2. All payments to non-residents of salaries, fees or other compensation for services performed in Delaware, where such payment is reported on form 1099MISC or form 1099R.

Whenever an individual or firm is required to report these forms to the Internal Revenue Service on magnetic media they are also required to report the return information to the Delaware Division of Revenue on magnetic media. The specific 1099 series returns which must be so filed include only the 1099MISC and 1099R forms. All others, including 1099DIV and 1099INT need not be filed for withholding purposes. See Technical Informational Memorandum 97-7 for additional filing requirements for form 1099. The data submitted by the payers will be in the format described in the current IRS Publication 1220 (Rev. 6-98), Catalog Number 61275P and annual updates thereto.

Your Federal employer identification number must appear on all forms, attachments, and correspondence you send to the Division of Revenue along with an appropriate phone number.

If you have acquired the business from another employer, you cannot use the number assigned to that business. The Division of Revenue uses the Federal Employer Identification number or temporary number assigned by the Division of Revenue to identify the employer. No other numbers are valid. If you have not applied for an identification number, you should do so on Form SS4, available from any Internal Revenue Service office or the Social Security Administration. The employer identification number is also used to identify all Division of Revenue tax accounts.

(a) Monthly
(b) Quarterly
(c) Eighth Monthly
(d) Lockbox Processing


 

(a) Monthly

Every employer required to deduct and withhold taxes on a monthly basis shall for each calendar month on or before the 15th of the month following the end of such calendar month, file Form W-1 withholding return, and pay to the Division of Revenue, or a designated depository, the taxes so required to be deducted and withheld.

(b) Quarterly

Every employer required to deduct and withhold taxes on a quarterly basis shall for each quarter on or before the last day of the month following the end of such calendar quarter, file Form W-1Q withholding return, and pay to the Division of Revenue, or to a designated depository, the taxes so required to be deducted and withheld.

(c) Eighth Monthly

Every employer required to deduct and withhold taxes on a eighth monthly basis shall file Form W-1A withholding return, and pay to the Division of Revenue, or to a designated depository, the taxes so required to be deducted and withheld within 3 days (exclusive of weekends and state holidays) after the appropriate tax period end. Each month is divided into eight payment periods that end on the 3rd, 7th, 11th, 15th, 19th, 22nd, 25th, and the last day of the month.

NEW FILING REQUIREMENT: Beginning January 1, 2000, eighth monthly filers will no longer be required to file quarterly reconciliation returns. An annual reconciliation must be filed.

If any date shown above falls on a Saturday, Sunday or State Holiday, payment is due on the next regular working day.

Withholding is reported in the month the payroll is completed. Incomplete payrolls at the month’s end will be included in the month the pay period end. For example: If the weekly pay period ends April 30, it is to be included in the April withholding report. However, if the pay period should end May 1, it should be included in the May report.

(d) Lockbox Processing

Withholding returns are no longer being accepted via bank lockbox.

Your continued cooperation using the mailing labels supplied with your coupon book is appreciated. Payment of taxes withheld should be mailed to: State of Delaware, P.O. Box 830, Wilmington, DE 19899.

The Division of Revenue uses Optical Character Recognition (OCR) equipment to process tax returns and remittances. The withholding tax returns have been designed for this special processing technique, and it is imperative that the preprinted information not be altered and the forms not be mutilated in any way.

(a) Mandatory Electronic Funds Transfer Program
(b) Business Internet Filing Program


 

(a) Mandatory Electronic Funds Transfer Program

Any employer required under the provisions of §6302 of the Internal Revenue Code to deposit federal employment taxes by electronic funds transfer will be required to deposit Delaware withholding taxes by electronic funds transfer. The effective date for this requirement is one year after the employer is required to deposit the federal funds electronically. For example, an employer who is required to deposit federal employment taxes on January 1, 2010 will be required to deposit Delaware withholding taxes by electronic funds transfer on January 1, 2011.

Effective January 1, 1999 House Bill No. 605 imposes a penalty on employers who are required by Delaware Law to deposit withholding taxes by electronic means and who do not do so. The penalty is the lesser of 5% of the amount that should have been electronically transferred or $500.

The EFT program is also available for all withholding agents who are not required to file electronically on a voluntary basis. Contact the Division of revenue for more details. The Electronic Funds Transfer options available to you include:

  1. ACH Debit: With this option, the Taxpayer initiates a toll-free phone call to the State of Delaware’s Data Collector at least one business day prior to due date. This phone call authorizes the State of Delaware to electronically transfer tax payments from the taxpayer’s depository into the State’s account.
  2. ACH Credit Option: This option allows the Taxpayer to initiate an ACH transaction through their depository. This ACH transaction will be in the Cash Concentration and Disbursement Plus (CCD+) format and must be initiated at least one day prior to the payment due date.

How to Enroll

To participate in the EFT program, you must complete the State of Delaware Electronic Funds Transfer Program, ACH Authorization Form. This form and instructions are available by contacting : Division of Revenue, Electronic Funds Coordinator, Carvel State Building, 820 N. French Street, Wilmington, DE 19899-8754.

If you have questions, please contact:

Withholding Tax
(302) 577-8779

EFT Program Information/Processing
(302) 577-8231

Every employer required to deduct and withhold tax is liable for such tax. For purposes of assessment and collection, any amount required to be withheld and paid over to the Division of Revenue, any additions of tax, penalties and interest with respect thereto, shall be considered the tax of the employer. Any amount of tax actually deducted and withheld shall be held in trust for the Division of Revenue. No employee shall have any right of action against his employer in respect to any money deducted and withheld from his wages and paid over to the Division of Revenue in compliance with the laws and regulations.

Any employer who fails or refuses to make a return or statement or to timely remit withheld taxes will be assessed penalties and interest as provided by law.

Whenever any employer fails to collect, truthfully account for, pay over the tax, or make returns of the tax required, the Division of Revenue may serve a notice requiring that the taxes which become collectible after service of such notice, to be deposited in a bank approved by the Director of Revenue, in a separate account, in trust for and payable to the Department of Finance, and to keep the amount of such tax in such account until paid over to the Department of Finance. Such notice shall remain in effect until a notice of cancellation is served by the Director of Revenue.

(a) General
(b) Household Employees
(c) Employers of Farmworkers
(d) Crew Leaders


 

(a) General

Everyone who performs services subject to the will and control of an employer both as to what shall be done and how it shall be done is an employee. It does not matter that the employer permits the employee considerable discretion and freedom of action if the employer has legal right to control both the method and the result of the services.

Though not always applicable, some of the characteristics of the term “employee” are that the employer has the right to discharge and furnishes the person with tools, a place to work, provides direction, supervision and determines the work hours.

In general those in business for themselves in a non-corporate form, are not employees (by way of example and not by limitation, physicians, lawyers, dentists, veterinarians, construction contractors, public stenographers, and others who follow an independent trade, business, or profession in which they offer their services to the public as a sole proprietor or partner in a partnership.)

If the relationship of employer and employee exists, the description of the relationship by the parties as anything other than employer and employee is immaterial. It does not matter that the employee is designated as a partner, agent, or independent contractor, or does it matter how they are paid, what they are called or whether the individual is employed full or part-time.

No distinction is made between classes of employees. Superintendents, managers, and other supervisory personnel are employees. Generally, an officer of a corporation is an employee; but a director in that capacity, is not. An officer who performs no services, or only minor ones, and who neither receives nor is entitled to remuneration is not considered an employee.

Whether the relationship of employer and employee exists under the usual common law rules and the IRS Regulations will be determined in doubtful cases by examination of the facts of each case.

(b) Household Employees.

Section 3401(a) of the Internal Revenue Code defines wages as “… all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid for … domestic service in a private home…”. The IRS regulations state that remuneration paid for services of a household nature performed by an employee in or about a private home of the person by whom he is employed is excepted form wages and hence is not subject to withholding. A private home is a fixed place of abode of an individual or family. In general, services of a household nature include services performed by cooks, waiters, butlers, housekeepers, maids, valets, babysitters, janitors, caretakers, gardeners, and chauffeurs.

While Federal and State withholding is not required for domestic services in a private home; an agreement between the employer and employee can be made to have the employer withhold State tax. The employer should have the employee complete federal form W-4 and withhold accordingly or withhold an amount agreed upon by the employee.

(c) Employers of Farmworkers

In general you are an employer of farmworkers if your employees: raise or harvest agricultural or horticultural products on a farm; care for your farm and equipment when most of the care is done on the farm; handle, process or package any agricultural or horticultural commodity if you produced over half of the commodity; or do housework in your private home if it is on the farm that is operated for profit.

(d) Crew Leaders

You are also an employer of farmworkers if you are a crew leader. A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. If there is no written agreement between you and the farm operator stating that you are his or her employee and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader.

Record the name and number of each employee exactly as they appear on his or her social security card. If an employee has no number, he should apply for one on Form SS-5, available at the nearest Social Security Office, Post Office, or Internal Revenue Office. If an employee has no number, but has a receipt acknowledging of his application for one on Form SS-5, ask him to show you his social security card as soon as he receives it.

(a) General
(b) Withholding Requirements for Farmworkers


 

(a) General

Wages consist of all remuneration whether in cash of other forms paid to an employee for services performed. The word “wages” covers all types of employee remuneration, including salaries; vacation allowances, bonuses, commissions, and earned severance pay. It is immaterial whether payments are based on the hour, day, week, month, year, piecework, or percentage plan. Wages paid in any form other than money are measured by the fair market value of the goods, lodging, meals, or other consideration given in payment of services.

If an employee receives sick pay for a sick leave or a family leave absence, the sick pay is subject to withholding as though it were a regular wage payment made for the payroll period. If sick pay is paid by a third party payer, the sick pay is also treated as a regular wage payment.

Amounts paid specifically for traveling or other ordinary and necessary expenses incurred or reasonably expected to be incurred in your business are not wages subject to these taxes. Traveling and other reimbursed expenses must be identified by making a separate payment or by specifically indicating the separate amounts if both wages and expense allowances are combined in a single payment.

Supplemental Unemployment Compensation Benefits are treated as wages if paid to an employee because of his involuntary separation from employment whether or not temporary under a plan to which the employer is a party. The separation must be due directly to a reduction in force, discontinuance of a plant or operation or similar condition.

The above examples of “wages” are by way of example and not by limitation. Any amount which is subject to federal withholding is subject to State withholding.

(b) Withholding Requirements for Farmworkers

Withholding taxes apply to all cash payments you paid during the year if either of the two tests below are met:

  1. You pay cash wages to an employee of $150 or more in a year including cash wages paid on a time, piecework, or other basis. The $150 test applies to each employee and each member of a family is treated separately.
  2. You pay $2,500 or more during the year to all your employees for agricultural labor.

Exception: Wages you pay to a farmworker who receives less than $150 in annual cash wages is not subject to withholding, even if you pay $2,500 or more in that year to all your farmworkers, if the farmworker:

  1. Is employed in agriculture as a hand harvest laborer,
  2. Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment,
  3. Commutes daily from his or her farm to the farm, and
  4. Had been employed in agriculture less than 13 weeks in the preceding year.

The compensation of every person who is a non-resident of Delaware is subject to withholding to the extent that it is compensation for personal services performed in the State of Delaware, as an employee, in the conduct of business of an employer in the State of Delaware. The compensation of a person who is a resident of Delaware is subject to withholding, provided that the personal services were performed as an employee in the conduct of business of an employer in the State of Delaware. Employers engaged in business outside Delaware, who employ Delaware residents who work in another state, are not required to withhold Delaware income tax on such employees, but may do so according to the approved methods if both the employer and the employee elect to withhold Delaware Income Tax. You must first withhold the tax for the State in which the employee works, then you may withhold taxes for the State of Delaware at the option of the employee.

Employers primarily engaged in business outside of Delaware, who also engage in business in Delaware and employ residents and non-residents to perform personal services in Delaware have the same requirements to withhold and remit Delaware tax as is required of other Delaware employers.

Some states have Reciprocal Agreements whereby each state agrees not to tax the wages of non-residents earned in the respective state. The State of Delaware does not have Reciprocal Agreements with any other state regarding the taxation of non-resident employees.

Distributions (periodic or non-periodic) from retirement plans, annuities or employer deferred compensation plans are based upon Federal guidelines. For example, if withholding is required for Federal purposes on these payments, then State withholding is also required. A percentage method of withholding rather than using the Wage tax tables is permitted. If a percentage method of withholding is used, it is recommended that the percent withheld not be less than 5%.

Under Federal statute, withholding on certain retirement pay is required unless the recipient specifically elects not to have the tax withheld. Delaware has no such requirement, but State tax may be withheld from such payments if the recipient voluntarily requests State withholding. An annuitant who has elected to have federal tax withheld, may either elect to have state tax withheld or elect not to have state tax withheld. An annuitant who has filed Federal Form W-4P (Annuitant’s request for Federal Income Tax withholding) may also request State Income Tax withholding. Effective in 1997 the Federal Office of Personnel Management implemented a Simplified State Income Tax Withholding Program. If you are a civil Service Annuitant and want to register for this program you can register by calling (800) 409-6528 or writing to OPM, P.O. Box 961, Washington, DC 20044-0001.

Effective for tax years commencing after December 31, 1995, distributions received from qualified retirement plans as defined in §4974 of the Internal Revenue Code (“IRC”), cash or deferred arrangements described in §401(k) of the IRC, and governmental deferred compensation plans described in §457 of the IRC, to the extent such distributions are applied within the tax year of the distributions for books, tuition, or fees at an institution of higher education attended by the person, or by any of the person’s dependents who are not the age of twenty-six, are not subject to Delaware withholding tax.

For income tax withholding, the pay period is the period of service for which you ordinarily pay wages to an employee.

If you have a regular payroll period, withhold the income tax on the basis of that period even though the employee does not work the full period.

If you have no payroll period, withhold the tax as if the wages were paid on a daily or miscellaneous payroll period. This method requires a determination of the number of days (including Sundays and state holidays) in the period covered by the wage payment. If the wages are unrelated to a specific length of time (for example, commissions paid on completion of a sale), the number of days must be counted from the date of payment back to the latest of (a) the last payment of wages made during the same calendar year, (b) the date employment commenced if during the same calendar year, or (c) January 2nd of the same year.

If an employee is paid for a period of less than one week and signs a statement under penalties of perjury that he is not working for wages subject to withholding for any other employer during the same calendar week, you may compute the withholding on the basis of weekly, instead of daily or miscellaneous, payroll period. If the employee later begins work for wages subject to withholding for another employer, the employee must notify you within ten days. After that, you must compute the withholding on the basis of the daily or miscellaneous period.

If you pay supplemental wages, such as bonuses, commissions, overtime, back pay (including retroactive wage increase), or reimbursements for non-deductible moving expenses in the same payment with regular wages, withhold the income tax as if the total of the supplemental and regular wages were a single wage payment for the regular payroll period.

If you pay supplemental wages in a different payment from the regular wages, the method for computing withholding tax is as follows:

  1. Annualize the employee’s regular wages and compute the tax on this amount.
  2. Annualize the regular wages and add the supplemental wage to this amount. Compute tax on this amount.
  3. Subtract the difference in the tax amounts.
  4. The remainder is the amount to be withheld from the supplemental wage.

Example: A single taxpayer, filing a single return with 1 allowance, earning $500.00 per week receiving a $5,000 bonus.

 

Without Bonus With Bonus
$26,000.00 Annualized Gross Wages $31,000.00
   -3,250.00 Minus Standard Deduction    -3,250.00
$22,750.00 Taxable Income $27,750.00
       884.00 Tax     1,153.63
      -110.00 Minus Exemption Credit (1x $110)       -110.00
     $774.00 Annual Tax   $1,043.63
    $-774.00
Amount to be withheld      $269.63

 

Example: A married person filing a joint return with 3 allowances, earning $500.00 per week receiving a $5,000 bonus

 

Without Bonus With Bonus
$26,000.00 Annualized Gross Wages $31,000.00
   -6,500.00 Minus Standard Deduction    -6,500.00
$19,500.00 Taxable Income $29,500.00
       717.00 Tax        975.00
      -330.00 Minus Exemption Credit (3x $110)       -330.00
     $387.00 Annual Tax      $645.00
    $-387.00
Amount to be withheld      $258.00

 

Example: A married taxpayer, filing a separate return with 2 allowances, earning $500.00 per week receiving a $5,000 bonus

 

Without Bonus With Bonus
$26,000.00 Annualized Gross Wages $31,000.00
   -3,250.00 Minus Standard Deduction    -3,250.00
$22,750.00 Taxable Income $27,750.00
       884.00 Tax     1,153.00
      -220.00 Minus Exemption Credit (2x $110)       -220.00
     $664.00 Annual Tax      $933.63
    $-664.00
Amount to be withheld      $269.63

 

If an employee receives regular wages, and reports tips, determine the income tax to be withheld on the tips as if the amount of tips reported were a supplemental wage payment or you may simply add the tips to the employee’s wages and compute the tax using the prescribed methods. If you have not withheld income tax from the employee’s regular wages, you must add the reported tips, as you would other supplemental wages, to the regular wages you paid within the same calendar year for the current or last preceding payroll period and withhold income tax as though the tips and regular wages were one payment.

An employer must withhold tax on tips to the extent withholding does not exceed wages (not including tips themselves) or from amounts turned over by the employee to the employer to meet the withholding requirement.

If an employee receives vacation pay for a vacation absence, the vacation pay is subject to withholding as though it were a regular wage payment made for the payroll period. If vacation pay is paid in addition to regular wages for the vacation, pay is treated as a supplemental wage payment.

NOTE: Delaware follows federal law defining income subject to withholding. Federal law has been amended to require reporting and withholding on certain non-cash taxable fringe benefits. Employers should be certain to take account of those changes and to properly withhold, for Delaware as well as federal purposes, on those fringe benefits.

(a) General
(b) Employees claiming 14 or More Allowances


 

(a) General

Each new employee must furnish a signed Federal Form W-4 or W-4A on commencement of employment. A Federal form W-4 or W-4A filed by a new employee is to be made effective upon the first payment of wages. If an employee fails to furnish a certificate, you must withhold tax as if the employee is a single person who has no withholding allowances.

An employee is entitled to the same number of withholding allowances as he or she is entitled to for Federal Income Tax withholding purposes. Thus, an employer may rely upon the number of Federal withholding allowances claimed by the employee. However, due to the difference between Federal and State deductions and credits, it may be necessary for an employee to claim either an additional number or a lesser number of withholding allowances for State purposes if the estimated withholding from the employee’s wages would not result in an amount substantially equivalent to the tax reasonably estimated to be due from the employee. In such cases, the employee shall file Federal Form W-4/W-4A, or equivalent provided by the employer, and indicated separately the number of allowances claimed on said Form ” for State of Delaware Purposes”.

There are two methods for estimating the number of withholding allowances for state taxes. The more detailed method requires a State Form SD/W-4Aor W-4NR for non-residents, in essence a ” pro forma W4 or W-4A”. It is offered only as a worksheet for determining the appropriate number of Delaware withholding allowances for those who believe their tax computation is complicated by non-wage income and substantial deductions. It is not required of Delaware wage earners; nor is it required to be in files of employers. Copies of the worksheet they are available from the Division’s Taxpayer Services office or by calling (302) 577-8779 and may be subsequently reproduced by the employer.

In lieu of the worksheet method, there is a practical and convenient rule of thumb for individuals who wish to compute separately the number of withholding allowances for federal and state taxes. Starting with the number of personal exemptions to be claimed on the tax return itself, the state computation is as follows:

  1. For each $2,000 by which your itemized deductions, net of state income taxes paid, exceed the $3,250 standard deduction, take one additional allowance.
  2. For each $2,000 of non-wage income that you expect to receive, take one fewer allowance.

(b) Employees Claiming 14 or More Allowances

Employers receiving withholding exemption certificate (Federal form W-4 or W-4A), shall be required to send a copy of such certificate to the Division of Revenue within 5 working days, providing that either of the following is claimed by an employee:

(1) The total of allowances claimed for Delaware Personal Income Tax purposes on the certificate is fourteen (14) or more allowances or

(2) The certificate indicated that the employee claims to be exempt from withholding of Delaware Income Tax and the employer reasonably expects the employee’s wages to exceed $168.50 per week.

Copies of these exemption certificates shall be mailed to: Assistant Director, Office of Personal Income Taxes, Division of Revenue, P.O. Box 2044, Wilmington, DE 19899-2044

Pending receipt of notice from the Division of Revenue, with respect to a copy of any certificate submitted, the employer shall withhold on the basis of the statements in the certificate. If the Division of Revenue finds that the certificates submitted contains materially incorrect statements or, after seeking verification from the employee, determines that it lacks sufficient information to find that the certificate is correct, and so notifies the employer, then the employer shall consider the certificate defective and shall withhold amounts from the employee as if the employee were a single person claiming no withholding allowances. The employer shall notify the employee of this action taken by the Division of Revenue and request that the employee file another withholding exemption certificate.

In general, the calculation requires the non-resident to calculate his/her tax as if he/she were a resident and then to multiply that tax by a fraction, the numerator of which is his/her Delaware source income (with Delaware modifications) and the denominator of which is his/her federal adjusted gross income (with Delaware modifications). The numerator is not adjusted for the Delaware pension exclusion as pension income is excluded by statute from the definition of a non-resident’s Delaware source income.

The change in the tax calculation for non-residents requires that, in order it properly estimate annual tax liabilities, non-residents review the Delaware W-4’s submitted to their employers. Form W-4NR, Non-Resident Withholding Computation Worksheet, is available to perform the calculation.

An employer may withhold taxes according to the withholding tax tables provided in this booklet or use any approved formula to determine the correct amount of tax to be withheld each pay period. The employer must withhold at a rate so that no tax is estimated to be due on the wages paid when the employee files his or her personal income tax return. The Division of Revenue will approve an alternate formula that considers the allowable standard deduction and tax credit(s) claimed by the employee, using the tax rate schedule on the balance of the wages paid. An approved method, based on annualized wages, is shown below.

Withholding Methods Based on Annualized Wages

Effective January 1, 2000, the $100 tax credit per exemption has been increased to $110. This change alters the method for calculating withholding based on annualized gross wages. The method below includes these changes.

Effective January 1, 2010 through December 31, 2011, the percentage on amounts of “$60,000 and over” increased from 5.95% to 6.95%.

Effective January 1, 2012, the percentage on amounts of “$60,000 and over” decreases from 6.95% to 6.75%.

Effective January 1, 2014, the percentage on amounts of “$60,000 and over” will decrease from 6.75% to 6.60%. The tax computation below includes these changes.

  1. Annualized gross pay. (Multiply the daily gross by 300, weekly gross by 52, monthly gross by 12, semi-monthly gross by 24 and bi-weekly by 26).
  2. Determine the standard deduction; $3,250 if the taxpayer is single, $6,500 for married filing jointly or $3,250 or married filing separate returns.
  3. Determine taxable income by subtracting the standard deduction (Step 2) from the annualized gross pay (Step 1).
  4. Compute the tax on the taxable income (Step 3) according to the following tax computation table:

Tax Computation Table Effective January 1, 2014

Taxable Income Between
$0 – $2,000
$2,000 – $5,000
$5,000 – $10,000
$10,000 – $20,000
$20,000 – $25,000
$25,000 – $60,000
$60,000 & over
Pay
$0.00
$0.00
$66.00
$261.00
$741.00
$1,001.00
$2,943.50
Plus
0.00%
2.20%
3.90%
4.80%
5.20%
5.55%
6.60%
On Amounts Over
0
$2,000
$5,000
$10,000
$20,000
$25,000
$60,000
  1. Multiply the number of employee’s personal exemption by $110.
  2. Subtract the total amount of the employee’s personal exemption credit (Step 5) from the computed tax (Step 4).
  3. Divide the resulting amount by the appropriate number of payroll period to determine the amount of tax to be withheld each pay period.

 

Example of Computation of Withholding Tax
Single Taxpayer – 1 Allowance

1. Annualized Gross Wages
2. Minus Standard Deduction
3. Taxable Income
4. Tax on $21,750.00 ($741.00 + $91.00 [$1,750.00 x 5.20%])
5. Multiply the Number of Personal Exemptions by $110.00
6. Tax Liability (Subtract Line 5 from Line 4)
7. Divide Tax By the Number of Pay Periods
Weekly – 52
Bi-Weekly – 26
Semi-Monthly – 24
Monthly – 12
$25,000.00
-3,250.00
$21,750.00
832.00
-110.00
$722.00
$13.88
$27.77
$30.08
$60.17

 

Married Taxpayer filing Joint Return – 3 Allowances

1. Annualized Gross Wages
2. Minus Standard Deduction
3. Taxable Income
4. Tax on $18,500.00 ($261.00 + $408.00 [$8,500.00 x 4.80%])
5. Multiply the Number of Personal Exemptions by $110.00
6. Tax Liability (Subtract Line 5 from Line 4)
7. Divide Tax by the Number of Pay Periods
Weekly – 52
Bi-Weekly – 26
Semi-Monthly – 24
Monthly – 12
$25,000.00
-6,500.00
$18,500.00
669.00
– 330.00
$339.00
$6.52
$13.04
$14.13
$28.25

Married Filing Separate Return – 2 Allowances

1. Annualized Gross Wages
2. Minus Standard Deduction
3. Taxable Income
4. Tax on $21,750.00 ($741.00 + $91.00 [$1,750.00 x 5.20%])
5. Multiply the Number of Personal Exemptions by $110.00
6. Tax Liability (Subtract Line 5 from Line 4)
7. Divide Tax By the Number of Pay Periods
Weekly – 52
Bi-Weekly – 26
Semi-Monthly – 24
Monthly – 12
$25,000.00
-3,250.00
$21,750.00
832.00
– 220.00
$612.00
$11.77
$23.54
$25.50
$51.00

It is important to note that the wage-bracket table gives the employee full benefit of allowances claimed by the employee, and the standard deduction of $3,250 for single, married persons filing separately. Tables have been provided for weekly, bi-weekly, semi-monthly, monthly, and daily or miscellaneous payroll periods.

The wage-bracket tables are arranged so that the amount of tax can be determined readily by reading down a column of wage-brackets, and then across the column headed by the number of withholding allowances claimed by the employee on his Federal W-4 or W-4A form.

In addition to the required withholding under the wage-bracket table method or the exact computation method, additional amounts may be withheld under an agreement between the employee and employer. The agreement must be in writing and in such form as the employer may prescribe. The additional withholding, together with the amounts otherwise required to be withheld as income tax, should be reported on Form W-2 as income tax withheld from wages. An agreement for additional withholding shall be effective for such period as may be mutually agreed upon; however, unless the agreement provides for in earlier termination, either the employer or employee may terminate the agreement by giving 30 days written notice.

Section 18: Employer’s Failure to Withhold

If an employer fails to deduct and withhold tax as required, and thereafter the tax is paid by the employee, the tax so required to be deducted and withheld shall not be collected from the employer, but the employer shall not be relieved from liability for any additions to tax, penalties, or interest otherwise applicable in respect to such failure to deduct and withhold.

(a) Amended Monthly or Quarterly Returns
(b) Employee Under and Over Collections
(c) Amended Annual Reconciliation


 

(a) Amended Returns

Effective January 1, 2000 the Division of Revenue has eliminated all amended returns. The new filing requirements for overpayment or underpayments are listed below:

At any time during the calendar year that you determine that an overpayment or underpayment of tax exists, make the adjustment in the amount you pay on the next return you are required to file. On the front of the return indicate the period for which the incorrect amount was paid and write an explanation for the overpayment or underpayment on the back of the return. The Division of Revenue will not refund overpayments that occur during the year, unless the amount of the overpayment is more than can be reasonably expected to be used during the rest of the calendar year. See the filing instructions in your coupon booklets for more detail. Credits not used by December 31st will be refunded with the filing of the Annual Reconciliation/Transmittal of Delaware Income Tax Withheld.

PLEASE NOTE: No credit of refund will be made to any employer if the employer was required to deduct Delaware Withholding Taxes from its employees. In such cases, the employee must file a Delaware personal income tax return to claim the over-withheld amount of taxes.

(b) Employee Under and Over Collections

If you deduct no tax, or less than the correct amount of tax from any wage payment, you may deduct the amount of the undercollection from later payments to the employee. However, you are liable for any underpayments.

If in any month or quarter you deduct more than the correct amount of tax from any wage payment, you should repay the over- collection to the employee. Keep as part of your records a written receipt from the employee showing the date and amount of the repayment. Every over – collection not receipted by the employee must be reported and paid with the return for the month in which the over-collection was made.

(c) Amended Annual Reconciliation

A claim for Revision form is to be used if after filing your original W-3, you find that an error was made on an Employee’s W-2 or on the amounts reported as being paid or other error made on the original filing of the W-3. Be sure to complete all information requested on this form. Do not send duplicate copies of all your W-2s. Only send W-2s for which a correction was made to the Delaware information. You do not need to file a corrected W-2 with us if only the Federal information is being corrected. If the State information pertaining to Delaware was correct on the original filing, do not send a corrected W-2 to us.

On or before January 31 of each year, employers must furnish to each employee the original of the Withholding Statement, Form W-2, showing the total amount of wages paid and the amount of State income tax withheld during the previous calendar year.

Where employment ends before the close of the calendar year, the Withholding Statement, Form W-2, is required to be furnished to the employee by the employer within thirty days from the date on which the last payment of wages were made. In case of intermittent or interrupted employment where there is reasonable expectation on the part of both employer and employee of further employment during the calendar year, no Form W-2 is required until January 31 of the following calendar year.

If it becomes necessary to correct a Form W-2 after it has been delivered to an employee; the new statement should be clearly marked “Corrected by Employer”. If the withholding statement is lost or destroyed, the employer is authorized to furnish subsequent copies to the employee; however, such substitute must clearly be marked “Reissued by Employer”.

Form W-3, Reconciliation of monthly W-1 or quarterly W-1Q returns or Form W-3A/W2 Reconciliation/Transmittal of eighth-monthly W-1A returns of Delaware income tax withheld must be filed no later than February 28, and must be accompanied by a duplicate of each Form W-2 issued to employees for the previous year.

If the W-3A/W2 Reconciliation Form shows an underpayment for the calendar year, the remittance must accompany the W-3 return. If the W-3 Form shows an overpayment, attach an explanation for the adjustment and this amount will be refunded provided such overpayment does not result from over- withholding. In such cases the amount overwithheld will be refunded to the employee at the time his or her tax return is filed.

Employers who pay wages to employees whose wages are insufficient to require withholding must file an annual reconciliation, Form W-3, and supply to the Division and to each employee a copy of Form W-2, Statement of Wages Paid.

Every employer required to withhold tax is required to keep all pertinent records available for inspection by the Division of Revenue for a period of not less than three years from the date the annual reconciliation was filed.

No particular form has been prescribed for such reports, but they should include the amount and dates of all wage payments and tips reported subject to these taxes; the names, and addresses, and occupations of the employees receiving such payments, the periods of their employment; their social security numbers; their income tax withholding form [Federal W-4 or W-4A]; the employer’s identification number; and the dates and amounts of deposits. These records should be kept for a period of at least three (3) years after the date the taxes to which the are related become due, or the date the taxes were paid, whichever is later

The Delaware Code authorizes the Division of Revenue to require an employer to withhold unpaid or delinquent taxes from an employee’s wages, which may be in the form of a wage attachment. If the Division determines that withholding of the unpaid or delinquent taxes is necessary, the employer is served a tax warrant by the Division of Revenue documenting the attachment of the employee’s wages. Payments of these wage attachments are to be transmitted to the office from which the wage attachment originated.

Withholding tax tables have been provided for the following payroll periods in the order named:

Effective January 1, 2017 (No changes from January 1, 2014):
Daily

weekly

bi–weekly

semi-monthly

monthly

 

Effective January 1, 2014 to December 31, 2015:
Daily

weekly

bi–weekly

semi-monthly

monthly

 

Effective January 1, 2012 to December 31, 2013:
Daily

weekly

bi–weekly

semi-monthly

monthly

 

Effective January 1, 2010 to December 31, 2011:
Daily

weekly

bi–weekly

semi-monthly

monthly

 

Effective January 1, 2000 to January 1, 2009:
Daily

weekly

bi–weekly

semi-monthly

monthly

 

The payroll period determines the table to be used.


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