What is Local Courtesy Withholding?#
For convenience purposes, many employers withhold for an employee’s local residential tax liability even when they are not required by law. This practice, called local courtesy withholding, is now fully supported.
Prior to the 2012-R7 release, courtesy withholding was either supported or not needed for the following local tax types:
- Wilmington EIT
- St. Louis/Kansas City Earnings Tax
- Indiana Counties
- Michigan City Tax
- West Virginia City Fee
- New York City/Yonkers Tax
- Pennsylvania LST
- Colorado OPT
- Kentucky OLF
However, there were still a number of residential local tax types where local courtesy was not fully supported in the STE. These included:
- Ohio City Taxes
- Ohio School District Taxes
- Pennsylvania EIT
As of 2012-R7, local courtesy is now supported for the above tax types.
Set Up for Local Courtesy Withholding#
States which do not require set up changes for Local Courtesy
Due to the nature of the following tax types, the STE will automatically handle local withholding based on the state and local statutes.
There is no additional set up required for the following:
- Wilmington EIT (DE)
- St. Louis/Kansas City Earnings Tax
- Indiana Counties
- Michigan City Tax
- West Virginia City Fee
- New York City/Yonkers Tax
- Pennsylvania LST
- Colorado OPT
- Kentucky OLF
- Kentucky OLFS
States which require set up changes for Local Courtesy#
Due to the nature of the following tax types, there is set up that must be done to handle local courtesy withholding.
- Ohio City Taxes
- Ohio School District Taxes
- Pennsylvania EIT
There are new State Tax Parameters added for each of the above tax types.
The UPUTR must be run for the above states in order to see the new State Tax Parameters in IPUTP.
Ohio Local Courtesy Withholding#
There are two State Tax Parameters that are used for local courtesy withholding for the state of Ohio, these are:- LOC_COURTESY_OH_CITY
- LOC_COURTESY_OH_SCHOOL
Ohio City Taxes
Previously Ohio city taxes would be calculated by using the wages in each work location and then the courtesy (rate, credit limit, and credit rate) for the resident location would be applied. This is incorrect for the resident location because, by statute, all wages, wherever earned, are to be taxed in the resident location. The courtesy is then applied for Ohio city taxes paid in nonresident work locations. This is now the default behavior for the STE.
In IPUTP for Ohio for the tax parameter ‘LOC_COURTESY_OH_CITY‘ by default the Value field will be populated with the DEFAULT option which in this case enables the local courtesy withholding.
If you wish to turn this feature off, a value of FALSE must be defined.
A value of DEFAULT or TRUE will enable local courtesy withholding.
A value of FALSE will disable the local courtesy withholding feature.
Ohio School District Taxes
Previously the STE would use all wages, wherever earned, to determine the Ohio school district tax. However additional research has shown that the correct wages to be taxed are all wages earned in Ohio only. This is now the default behavior in the STE.
In IPUTP for Ohio for the tax parameter ‘LOC_COURTESY_OH_SCHOOL ‘ by default the Value field will be populated with the DEFAULT option which in this case disables the local courtesy withholding.
A value of TRUE will enable local courtesy withholding; meaning wages earned in all states will be used to calculate Ohio school district tax.
A value of DEFAULT or FALSE will disable the local courtesy withholding feature, meaning only wages earned only in Ohio will be used for Ohio school district taxation.
Pennsylvania Local Courtesy Withholding#
The following is the State Tax Parameter that is used in IPUTP for Pennsylvania local courtesy withholding:
- LOC_COURTESY_PA_EIT
Pennsylvania EIT (Earned Income Tax)
Courtesy withholding for Pennsylvania EIT operates as follows: Act32 calculations are computed normally. Then, if courtesy has been turned on, all wages OUTSIDE the state of Pennsylvania will used to compute an additional tax amount to be added to the resident tax computation.
In IPUTP for Pennsylvania for the tax parameter ‘LOC_COURTESY_PA_EIT‘ by default the Value field will be populated with the DEFAULT option which in this case enables the local courtesy withholding.
A value of DEFAULT or TRUE will enable local courtesy withholding for PA EIT, meaning all wages earned outside of Pennsylvania will be used to calculate an additional tax amount added to the resident tax calculations.
A value of FALSE will disable local courtesy withholding for PA EIT, this means that wages earned outside of Pennsylvania will not be used to compute an additional tax amount to be added to the resident calculations.
