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January 31, 2023
2023-0182

Idaho State Tax Commission to update withholding formula by July 2023 to reflect new flat tax effective January 1, 2023

The Idaho State Tax Commission stated that the new flat tax of 5.8% on income over $2,500 ($5,000 for married filing joint) that took effect January 1, 2023 under H.B.1 will be reflected in its annual withholding formula revisions that are published before July 1 each year, delaying issuance of the updated withholding formula by six months. (Idaho State Tax Commission, email response to inquiry, 1-18-2023.)

The Commission's Table for Percentage Computation Method of Withholding and the Table for Wage Bracket of Withholding, last updated June 15, 2022, reflect changes under H.B. 436, that, effective retroactive to January 1, 2022, lowered the state's top personal income tax rate from 6.5% to 6.0% and reduced the number of brackets from five to four. (See EY Tax Alert 2022-1096, July 19, 2022.)

Accordingly, until the withholding formula is updated (by July 2023), the withholding rates that apply for January through June 2023 range from 1.0% to 6.0% (1%, 3%, 4.5% and 6%), rather than the flat 5.8% under H.B. 1 that applies effective January 1, 2023.

EY Insights

Due to the anticipated six-month delay in the Commission's issuance of the updated withholding formula, some employees could be under withheld and others over withheld. For instance, a single taxpayer with annual earnings from $2,500 to $21,261 could be under withheld, while a single taxpayer with annual earnings over $21,261 could be over withheld.

Employers may want to consider communicating to employees that the current Idaho withholding formula may not result in Idaho income tax withholding that matches their estimated Idaho personal income tax liabilities for 2023. Employees may wish to consider adjusting their ID W-4, Employee's Withholding Allowance Certificate.

See also Massachusetts, where the added tax for income over $1 million, effective January 1, 2023, is not likely to be reflected in the state's withholding formula until 2024.

For a breakdown of the 2023 income tax withholding rates for all states go here.

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Kristie Lowery (kristie.lowery@ey.com)
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Debera Salam (debera.salam@ey.com)

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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