Payroll Tax: Withholding Local Tax by Work Location and Residence

Many of you processing payroll in a wide variety of states face a similar challenge: local payroll tax withholding amounts by work location and by residence for your employees. Here’s more about how it works, and also suggestions for handling it within your payroll software.

Employees who work at several different locations during the same pay period may require a different local tax withholding amount, determined by the city in which the work is performed. In addition, there may also be a local withholding tax for the city of their residence. Without a way to track both of these taxes, you can easily make the wrong calculations or spend hours of time manually trying to figure it out. Here are states with some cities that assess local employment taxes.

  • Alabama
  • Colorado
  • Delaware
  • Indiana
  • Maryland
  • Missouri
  • Ohio
  • Pennsylvania
  • Arkansas
  • District of Columbia
  • Iowa
  • Kentucky
  • Michigan
  • New York
  • Oregon

Keeping track of these withholding amounts is complex. But there is a way to handle this situation within your payroll software. You can create ‘Local Tax Entities’ within your payroll software, relate the tax entities to the appropriate employees, and then during time/pay entry you can select the appropriate local tax entity assigned to the time/pay entry. This is something not all payroll software programs will allow you to do. It is worth asking your software provider if there is a way to handle it in the program you are using. If not, give us a call. CenterPoint Payroll Software can easily handle payroll local tax withholding, and much more. (PS: if you are a Red Wing Software customer with a current Customer Care Plan, give us a call and we will help you get this set up!)

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