As most people are aware, taxes can take a good chunk out of employees’ pay each period. These taxes include federal and state income taxes and FICA taxes, which are made up of Social Security and Medicare taxes. Payroll professionals also need to think about the employer-paid portions of FICA. If the business and/or its employee(s) work in a state that does not have a state income tax, that may ease the burden a bit.
However, on the flipside, there are multiple states that add further complexity with local income taxes imposed by different municipalities, cities, counties, or school districts. These can range from a flat rate or specific dollar amount assessed on each pay period for applicable employees. Some states like California, Delaware, and New Jersey, have just a single local jurisdiction where the additional tax applies. Others may have hundreds or, in the case of Pennsylvania, a few thousand taxing jurisdictions to be aware of. Tax rates also vary from location to location, and can sometimes change depending on the employee’s resident or non-resident status in the area.
Areas with Additional Local Taxes
Below is a list of states with cities or districts that assess additional income taxes. Keep in mind these are additional individual income taxes, and depending on the types of applicable earnings, may not impact a company’s payroll.
Alabama:
Multiple jurisdictions with tax rates ranging from .5% to 2%.
California:
San Francisco only.
Colorado:
Five cities with flat dollar amounts charged per month ranging from $2 to $10.
Delaware:
Wilmington only, charged at a rate of 1.25%.
Indiana:
All counties with varying rates.
Iowa:
Over 280 districts with varying rates. Most apply to residents only.
Kansas:
Roughly 500 counties, cities, and townships, but does not apply to earned wages or non-residents.
Kentucky:
Over 200 local taxing jurisdictions with varying rates.
Maryland:
All counties with varying rates.
Michigan:
Multiple cites with varying rates.
Missouri:
1% in Kansas City and St. Louis.
New Jersey:
Newark. Additional tax also assessed to waterfront residents.
New York:
New York City and Yonkers with varying rates. The Metropolitan commuter transportation mobility tax (MCTMT) may also apply. Additional tax also assessed to waterfront residents.
Ohio:
Over 800 school districts with varying rates.
Oregon:
Transit tax applies to employee wages earned in the Tri-County Metropolitan or Lane Transit districts.
Pennsylvania:
Most municipalities with varying rates.
West Virginia:
Flat dollar city service fees are assessed per pay period in certain cities.
Keep Your Local Taxes & Payroll Straight
If you have employees in one or more of the states listed above, it’s easy to see how payroll can get very complicated very quickly. Working with a dedicated and expert team of payroll professionals can save you from having to learn all of the intricacies of each state and locality, allowing you to spend time focusing on your business. Contact Valor Payroll Solutions today to see how we can help!
