Local Tax Overview Delaware, Michigan, New Jersey & New York
Table of Contents General Local Tax Guidelines... 1 How Are Local Taxes Calculated?... 2 Delaware Guidelines... 3 Michigan Guidelines... 4 New Jersey Guidelines... 5 New York Guidelines... 6 Metropolitan Commuter Transportation Mobility Tax... 7 Local Tax Quick Reference... 8 i Revised 4/11/2012
General Local Tax Guidelines If an employer is located in a jurisdiction that imposes a local income tax, all employees that work in this location are required to pay this tax. In some localities, if employees live in a jurisdiction that also imposes a local tax, the employee will be able to apply the amount paid for the worked-in tax to the lived-in tax jurisdiction. Generally, employers are required to withhold worked-in taxes. If employees are required to pay lived in taxes, it is the employer's option to withhold the additional lived-in taxes. Employers may obtain an Employer Identification Number (EIN) from the employee s lived-in locality and withhold lived-in taxes. The employer is then accepting all responsibility for the deposits and filings to the resident locality. If employers do not withhold the lived-in taxes, it is the employee's responsibility to pay the lived-in taxes to the resident locality. 1
How Are Local Taxes Calculated? Method 1 Method 2 Method 3 Method 4 Local taxes are most often calculated as a percent of an employee's taxable wages. There are usually no limits on the amount to be withheld for local taxes as there are for Social Security or FUTA\SUI\SDI (Kentucky is an exception, with 9 locals that have limits). Some localities, such as New York City, use the same factors as FIT and SIT to calculate local tax. These factors can be: Gross Pay Marital Status Number of Exemptions Pay Frequency Localities, such as Greenwood Village, Colorado, require both employer and employee to pay a flat dollar amount per month, after an employee earns a minimum amount in any given month. This is an example of a flat dollar amount tax. Many localities in Pennsylvania impose a Local Services Tax (LST), formerly known as the Occupational Privilege Tax (OPT) or Emergency Municipal Services Tax (EMST). This tax is calculated at a fixed dollar amount per year withheld from each payroll period throughout the year and applies only in the municipality where the employee works. 2
Delaware Guidelines There is currently only one local tax in Delaware for Wilmington, and it is a workedin and lived-in local tax. Employees that work in Wilmington are subject to Wilmington local tax. Residents of Wilmington are also subject to this tax. The table below describes the employer s responsibility for local taxes in Delaware: If an employer is and employees live then the employer located in Wilmington in Wilmington must withhold the Wilmington tax located in Wilmington outside of Wilmington must withhold the Wilmington tax located in Wilmington outside of Delaware must withhold the Wilmington tax located in Delaware must withhold the in Wilmington other than Wilmington Wilmington tax Can apply for an ID in the lived in jurisdiction and withhold the lived in tax. is located outside of Delaware in Wilmington or Can choose not to withhold the lived in tax and make employees responsible for the tax. The Wilmington web site has an address coding guide which lists all the addresses and streets within the corporate limits of the city of Wilmington. The address to this guide is http://www.ci.wilmington.de.us/docs/79/codingguide.pdf For more information on Wilmington visit: http://www.ci.wilmington.de.us/government/finance Regulations: http://www.ci.wilmington.de.us/docs/78/cow_eitregulations.pdf 3
Michigan Guidelines The local taxes in Michigan are both worked-in and lived-in. Employers, however, are required to withhold taxes for the locality in which wages are earned. If an employee lives in a jurisdiction that also imposes a local tax, the employer can choose to withhold that tax as a courtesy to the employee or choose not to withhold that tax, making the employee responsible for paying that resident tax. If an employee works and lives in different localities, then both jurisdictions will allow a credit. The following table further describes employer responsibility in Michigan: If an employee the employee will pay Example Total Rate(s) Withheld Lives and works in the same city the full rate to the lived-in city. Works in Albion and Lives in Albion Pays 1.00% to Albion Lives in a different city than the worked-in city ½ of the worked-in city rate and ½ of the lived-in city rate to the lived-in city (possible exception). Works in Battle Creek but Lives in Jackson (½ of Battle Creek s rate and ½ of Jackson s rate) Battle Creek 0.5% Jackson 0.5% Total = 1.00% Lived-in city tax rate is greater than the worked-in city tax rate ½ of the worked-in city rate and the difference to the lived-in city to equal the FULL lived-in city rate. Works in Flint but Lives in Saginaw (½ of Flint s rate, subtract that ½ from Saginaw s rate) Flint 0.5% Saginaw 1.0% (1.5% - 0.5% paid to Flint) Total =1.5% Worked-in city tax rate is greater than the lived-in tax rate ½ of the worked-in tax rate to the worked-in city and at least ½ to the lived-in city. Works in Saginaw but Lives in Flint (½ of Saginaw s rate and ½ of Flint s rate) Saginaw 0.75% Flint 0.5% Total = 1.25% For a listing of local web sites in Michigan, visit: http://www.statelocalgov.net/state-mi.cfm 4
New Jersey Guidelines The city of Newark has a local tax, paid by the employer, which is based on wages earned within the city. Newark states that wages subject to federal withholding must be reported for any employees who: a. perform services within the city of Newark, or b. perform services that are supervised from within the city of Newark or c. report to a location within the city of Newark as their principal location of employment For more information, visit: http://www.ci.newark.nj.us/userimages/downloads/fin_2011%20payroll%20tax%2 0Booklet.pdf 5
New York Guidelines The local taxes in New York are both worked-in and lived-in. There are only two cities that have taxes, New York City and Yonkers, and these taxes are remitted with the State Income Tax. The following table describes employer responsibility for New York and Yonkers taxes: If an employee lives and works then the employer must withhold In New York City anywhere New York City resident tax. In Yonkers anywhere Yonkers resident tax In New York City Yonkers New York City resident tax and Yonkers non-resident tax Anywhere Yonkers Yonkers non-resident tax These rules apply to Yonkers as well as any of the five boroughs of New York City, which are: Manhattan Brooklyn Queens Staten Island Bronx For more information visit: www.tax.state.ny.us For more information on New York s tax rates visit: http://www.tax.ny.gov/bus/wt/wtidx.htm The Withholding Tax Jurisdiction Lookup site can also be used to determine if an address falls within New York City or Yonkers: http://www8.tax.ny.gov/wtlr/wtlrhome 6
Metropolitan Commuter Transportation Mobility Tax The metropolitan commuter transportation mobility tax (MCTMT) is a tax imposed on certain employers and self-employed individuals engaging in business within the metropolitan commuter transportation district (MCTD). This department administers the tax for the Metropolitan Transportation Authority. (The MCTD includes the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester.) The tax applies to you if: you are located within the counties listed above and you are required to withhold New York State Income Tax from wages and Beginning with the second quarter, 2012 (4/1/12-6/30/12), if your payroll expense for the quarter: o o Is $312,500 or less, you're not subject to the MCTMT for that quarter. Exceeds $312,500, use the appropriate rate shown below. Payroll expense MCTMT Rate Over $312,500 but not over $375,000.11% (.0011) Over $375,000 but not over $437,500.23% (.0023) Over $437,500.34% (.0034) For more information, visit: http://www.tax.ny.gov/bus/mctmt/default.htm or http://www.tax.ny.gov/bus/mctmt/mctmt_changes.htm 7
Local Tax Quick Reference State Alabama Colorado Delaware Indiana Kentucky Maryland EE Paid ER Paid Worked In Lived In Additional Information The local taxes in Alabama are occupational license fees which must be withheld from employees working in the city or county. The cities in Colorado impose an occupational tax on employees and employers doing business in their city. This is a flat monthly tax paid by the employee and the employer. The city of Wilmington imposes a tax on employees working or living in the city. Employers doing business in Wilmington must withhold it from their employees working in Wilmington and employers in the state of Delaware must withhold it from any Wilmington residents. The counties in Indiana impose a tax on residents and employers in the state of Indiana must withhold it from any Indiana residents. These local taxes are filed with the Indiana state income tax. The local taxes in Kentucky are occupational license fees imposed by some cities and counties. Employers doing business in a city and/or county with a tax must withhold the tax from any employees working there. The local taxes in Maryland are withheld from residents of the cities and counties which impose a local tax and are combined with the Maryland state income tax. 8
Local Tax Quick Reference State Michigan Missouri New Jersey New York Ohio Oregon EE Paid ER Paid Worked In Lived In Additional Information The local taxes in Michigan are imposed on employees based on where they live and/or work. If they work and live in two different cities which both impose a tax, they are allowed a credit in each. Employers are only obligated to withhold any worked-in taxes. Kansas City and St. Louis impose a tax on employees working in either city or living in either city. Employers must withhold this tax if they are doing business in either city. The city of Newark imposes a tax on employers doing business in the city. Employers must withhold taxes from New York City and Yonkers residents and from employees working in Yonkers. The local taxes in Ohio are imposed on employees working and/or living in a city with a tax. Many cities will allow resident credits to employees working and paying tax in a different city. The full tax rate must always be paid to the worked-in city. Employers are only obligated to withhold any worked-in taxes. The local taxes in Oregon are transportation taxes imposed on employers doing business in the state of Oregon. Oregon also has a Worker s Benefit Fund which is paid by both employees and employers. 9
Local Tax Quick Reference State Pennsylvania EE Paid ER Paid Worked In Lived In Additional Information The Earned Income Tax is withheld from residents based on where they work and then forwarded to their resident municipality by the worked-in tax collector. The Local Services tax is withheld from employees based on where they work. 10