Wednesday September 5th 2018
In July 2018, New Jersey became the latest state to pass legislation allowing cities to impose payroll taxes on employers, joining 15 other states that allow local taxing.
The New Jersey bill allows municipalities with more than 200,000 residents to impose employer payroll taxes of up to 1 percent of total payroll to be paid to directly to the local school district.
Local payroll taxes generally are used for a variety of specific programs – unlike progressive income taxes, which flow directly into the city’s general fund. Payroll taxes are usually set at a flat rate for all taxpayers and earmarked for specific programming, like New Jersey’s recent law, which allows cities to collect payroll taxes specifically for schools.
However, a wide variety of local taxes on employee income are appearing in municipalities across the country, taking the form of a wide variety of wage taxes, income taxes, payroll taxes, local services taxes, and occupational privilege taxes.
In most cases, the employer withholds the tax. However, in some cities, such as San Francisco and Portland, Oregon, the tax is levied directly on employers. In some cases, a local tax is assessed as a percent of wages. In others, the additional local tax is calculated as a percentage of federal or state tax. In some cases, the local tax is a flat amount paid equally by all wage earners.
Some local income taxes are permanent—often to fund operating budgets. Other local income taxes are temporary and fund a specific, short-term purpose, which complicates matters for payroll managers.
Local payroll taxes are paid by the employee, but are usually withheld and deposited by the employer. However, in some locations, the employer pays the tax. For example, Colorado’s occupational privilege tax requires employers to pay a tax for each employee at the business.
If an employee works in a location that imposes a local income tax, employers must deduct that tax from their wages. The employer must:
As rules such as these become active, iSolved, along with its tax engine, iSolved Tax, will properly manage local taxing, making it easier for employers.
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