Maine State Tax Withholding Requirements

Withholding state income tax is a standard procedure for employers in Maine, involving collecting a portion of each employee’s wages and remitting it to Maine Revenue Services. This process facilitates the prepayment of an individual’s annual state income tax, which helps prevent a large tax bill when they file their annual return. These collected funds are a principal source of revenue for the state, financing public services. The amount withheld is determined by information the employee provides and is calculated according to state guidelines to align with the employee’s eventual tax obligation.

Employee Requirements and Form W-4ME

An employee performing services in Maine must complete Form W-4ME, the Employee’s Withholding Allowance Certificate, to inform their employer of the correct amount of state income tax to withhold. Before filling out the form, an employee must determine their filing status, which directly impacts the tax calculation. The options are single, married filing jointly, married filing separately, or head of household.

The core of Form W-4ME involves claiming withholding allowances. Each allowance claimed reduces the amount of income subject to withholding, thereby lowering the tax deducted from each paycheck. Employees can use the worksheet accompanying the form to calculate the appropriate number of allowances based on their personal circumstances, including dependents and anticipated deductions.

In addition to allowances, the form provides a line for an employee to request that an additional, specific dollar amount be withheld from each pay period. This option is useful for individuals who have other sources of income not subject to withholding. Once completed, the employee signs and dates the form and submits it to their employer. Blank copies of Form W-4ME can be downloaded from the Maine Revenue Services website.

Employer Registration and Responsibilities

Any business that pays wages to employees for work performed in Maine is required to register with Maine Revenue Services for a withholding account. The process is completed online through the Maine Tax Portal, where businesses provide key information such as their legal business name, address, and Federal Employer Identification Number (FEIN).

Upon successful registration, Maine Revenue Services will issue a unique Maine withholding account number. This number is the primary identifier for the employer’s account and must be used on all subsequent withholding tax filings and payments. Payroll providers will also require this account number to remit taxes correctly on the employer’s behalf.

Once registered, an employer has three main responsibilities. The first is to honor the withholding instructions provided by each employee on their Form W-4ME. The second is to deposit the collected tax funds with Maine Revenue Services according to a predetermined schedule. The final duty is to file periodic returns that report the total wages paid and taxes withheld.

Calculating and Depositing Withheld Taxes

After an employer receives a completed Form W-4ME, they must use it to calculate the correct amount of state income tax to withhold from each employee’s paycheck. Maine Revenue Services provides official withholding tables and a percentage method formula for this purpose. These tools use an employee’s wage amount, pay period frequency, filing status, and number of allowances to determine the tax amount.

The frequency of depositing withheld funds depends on the employer’s total withholding liability during a 12-month lookback period ending June 30 of the prior year. Employers who reported withholding less than $18,000 during this period are required to make payments quarterly. Those who reported $18,000 or more must deposit the funds on a semi-weekly schedule. For semi-weekly depositors, payments for wages paid on Wednesday, Thursday, or Friday are due the following Wednesday, while payments for wages paid on Saturday through Tuesday are due the following Friday. Once an employer is required to make semi-weekly payments, they must continue on that schedule, even if their withholding amount falls below the threshold in a future lookback period.

Maine requires that most withholding payments be made electronically. The primary method for this is through the Maine Tax Portal, which offers a service called Maine EZ Pay for making Electronic Funds Transfer (EFT) payments. Electronic payment is the standard and expected method for the vast majority of employers operating in the state.

Filing Withholding Tax Returns

In addition to depositing withheld taxes, employers must file returns to report their withholding activities to Maine Revenue Services. The primary reporting form is the quarterly return, Form 941ME. This form reconciles the total wages paid, state income tax withheld, and deposits made during a calendar quarter. All employers must file this form electronically through the Maine Tax Portal for each quarter, even if no wages were paid or no tax was withheld.

Annually, employers must provide each employee with a Form W-2, Wage and Tax Statement, by January 31 of the following year. This form details the employee’s total earnings and the federal and state taxes withheld for the calendar year. Employers are required to submit copies of these W-2 forms to Maine Revenue Services electronically by the January 31 deadline, as paper copies are not accepted.

For tax years beginning on or after January 1, 2024, the annual reconciliation return, previously known as Form W-3ME, is no longer required to be filed. The quarterly filings and the electronic submission of W-2 data now serve as the complete record of the employer’s annual withholding.

Withholding on Other Types of Payments

The requirement to withhold Maine income tax extends beyond regular wages to include other types of compensation. Supplemental wages, which include payments like bonuses and commissions, are also subject to withholding. Employers have the option to calculate the withholding on these payments by adding them to regular wages and using the standard withholding tables, or they can choose to withhold at a flat 5% rate.

Withholding rules also apply to payments from pensions and annuities made to Maine residents. Payers of these benefits are required to withhold state income tax if the recipient has requested it or if federal income tax is being withheld from the payments.

The responsibility for withholding is not limited to employers. For instance, buyers of real estate in Maine from non-resident sellers must withhold 2.5% of the consideration if the amount is $100,000 or more. This amount is remitted to Maine Revenue Services using Form REW-1. Similarly, certain pass-through business entities must withhold tax on the Maine-source income distributed to their non-resident members.