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