Federal tax reform is having an impact on individual states' tax policies. In June, the Internal Revenue Service (IRS) released a draft of the new Form W-4 for 2019, and it was anticipated that states would take subsequent action. Major changes to the IRS tax withholding structure are prompting state leaders to decide how closely to adhere to the federal process.
State tax codes generally conform to many federal tax code provisions. The federal tax overhaul may result in states seeing:
- Higher collection rates, due to factors like repeal of the personal exemption;
- Reduced itemized deductions; and
- Limitations on the interest deduction.
To date, four states have passed new tax measures in response to the recent federal tax laws.
Idaho updating 2018 income tax withholding tables
The Idaho legislature recently passed a law to make its W-4 form conform to the federal IRS Code for tax year 2018, including more tax breaks and a new child tax credit. Employees will see significant changes to the 2018 Idaho personal income tax return.
In response to the legislation, the Idaho State Tax Commission updated state withholding tables that reflect adjustments for inflation and lower income tax rates. The law eliminates personal and dependent exemptions, and removes or caps most itemized deductions.
The Idaho State Tax Commission encourages all employees to review and complete a new federal Form W-4, if necessary. Those seeking online resources can go to Avoid a Tax Surprise – Act Now! or A Guide to Idaho Income Tax Withholding.
Oklahoma creates state withholding allowance form
The Oklahoma Tax Commission has developed a state-specific withholding allowance form, OK-W-4. The state had previously used the federal Form W-4, but following the federal Tax Cuts and Jobs Act — the Trump administration's tax reform legislation — the agency determined that Oklahoma needed a state-specific W-4. The new OK-W-4 (Oklahoma Tax Commission Employee's Withholding Allowance Certificate) allows employees to make changes to their Oklahoma withholding for 2018.
The agency encourages employers to let new and current employees review the new form because the new federal tax brackets may affect their Oklahoma individual income tax liabilities.
Employees who started work on or after March 1, 2018, or any current employees who want to make changes to their state tax withholding on or after this date should submit a Form OK-W-4 to their employer.
Georgia releases new version of G-4 withholding allowance certificate
The Georgia Department of Revenue has released a new Form G-4, Withholding Allowance Certificate to align with the recent legislative changes arising from federal tax reform. The state doubled the standard deductions for all taxpayers. The new G-4 is now available on the Georgia Department of Revenue website.
Maryland releases new version of the MW507 withholding allowance certificate
The Comptroller of Maryland has released a new Form MW507, Employee Withholding Allowance Certificate, to align with the recent legislation changes as a result of the Federal Tax Cuts and Job Act. The maximum standard deduction was increased from $2,000 to $2,250. The new MW507 is now available on the Comptroller of Maryland website. Employees are only required to submit a new MW507 to their employer if requesting a change to their current withholding.
As Idaho, Oklahoma, Georgia, and Maryland begin implementing their own withholding measures in response to the federal tax overhaul, more states could follow suit. Paychex will keep you informed if and when these developments occur.