Income You Must Withhold On

All wages, tips, and other compensation that employees earned or were paid for services performed in Idaho are subject to Idaho income tax withholding. The pay may be in cash or in another form. Pay includes salaries, vacation allowances, bonuses, commissions, and fringe benefits. It doesn’t matter how you measure the compensation or make the payment. Generally, if the Idaho compensation is subject to federal income tax, it’s also subject to Idaho income tax.

Compensation you pay to a former employee for services performed while he or she was still employed in Idaho is subject to Idaho income tax withholding.

Example An employee is granted stock options, and those options vest while the employee is performing services in Idaho. The compensation or gain is subject to Idaho income tax withholding when the employee exercises the options. This is true even if the employee lives or works outside of Idaho when he or she exercises the options.

Wages

All wage income is subject to Idaho income tax if an employee earns the income while working in Idaho. This includes:

Employees who aren’t Idaho residents
Employees who are family members
People working only one day in Idaho (e.g., performers, athletes)
People who aren’t citizens of the United States, unless they’re exempt from federal withholding

Reimbursements for employee business expenses

Your requirement to withhold income tax depends on your reimbursement or allowances plan.

If you have an accountable plan you don’t have to withhold Idaho income tax on reimbursements for employee business expenses.
If you have a nonaccountable plan you must withhold Idaho income tax on reimbursements for employee business expenses.

See IRS Publication 15, Circular E, Employer’s Tax Guide, for definitions of accountable and nonaccountable plans.

Wages paid “in kind”

This refers to wages you pay employees in something other than money. Examples include goods, lodging, food, clothing, services or personal use of a company vehicle.

Generally, you must withhold Idaho income tax on the fair market value of such payments when you make them for services employees provided in Idaho.

Exception You don’t have to withhold Idaho income tax for food or lodging provided for the employer’s convenience if the food or lodging qualifies for an exclusion from wages under federal law.

Supplemental wages

Idaho income tax applies to any of these items if the employee earned it while working in Idaho:

Bonuses
Commissions
Overtime pay
Payments for accumulated sick leave
Severance pay
Awards or prizes
Back pay, retroactive pay, other similar payments

Compute withholding one of these ways:

Combine the supplemental payment with regular wages and treat it as a single payment.
Multiply the separately-issued supplemental payment by 6 percent.

Employee benefits

Benefits that are taxable under the Internal Revenue Code (IRC) are subject to Idaho income tax withholding if they’re earned for services the employee provided in Idaho. It doesn’t matter when the employee receives the benefit.

Examples of a Taxable Benefit Cars and flights on aircraft that the employer provides, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sporting events. These are also called fringe benefits.

Benefits such as 401(k) plans and cafeteria plans that the IRC considers tax deferred are also tax deferred for Idaho and not subject to income tax withholding.

Stock options

We consider granting stock options to be compensation for services, whether treated as compensation or capital gain income for federal income tax purposes. This income is subject to Idaho income tax withholding if the employee performed services in Idaho between the time the option was granted and the time the option vested. For more information, see Idaho Income Tax Rule 271.

Tips

Tips employees receive for work they do in Idaho are subject to Idaho income tax withholding. Report as Idaho income the same tip amount you reported as federal income. See IRS Publication 531, Reporting Tip Income.