A tax is a tax is a tax, right? Well, as anyone who has ever read a single paragraph of the state or federal tax code knows, there is rarely a simple answer to any tax-related question. If you’re a small business owner, you probably understand a little bit about the complexity of payroll taxes. Besides the responsibility of withholding federal taxes, small businesses must also withhold state and local taxes. As you will see, the rules governing county taxes alone can make you feel a little dizzy.
Some Counties Have a Local Tax Rates for Workers Employed in That County. Some (but not all) counties in Indiana have a tax rate that must be applied to the earnings of employees who work within that county. The rates for each county, known as the nonresident rates, are published each year in October for the following year and my change from year to year. If workers spend time employed in two different counties, the county in which the employee worked a majority of time will be the county whose rate is applied.
Some Counties Have a Local Tax Rate for Residents of That County. Some (but not all) counties in Indiana also have a set local tax rate for residents of that county. This rate, known as the resident rate, is published each year in October for the following year’s withholding and may change from year to year. Click here to view a listing of the resident and nonresident rates for all Indiana counties that impose these taxes.
Some People Live in a Different County than They Work In. So what then? If an employee lives in a county with a local tax, then taxes are withheld at the resident tax rate of the county of residence. If the employee lives in a county without a local tax, then their taxes should be withheld at the nonresident rate for the county of employment. The tax code says that employees cannot be taxed with both the resident and nonresident tax in the same year.
As you can imagine, there are a lot of variables involved here. Payroll administrators must not only understand the rules but also apply them accurately. Complexity is magnified by the fact that these variables can change from year to year. Counties can adopt a resident or nonresident tax. Rates can change from year to year. Employees can move to a different county. It sounds overwhelming. Fortunately, it’s not overwhelming to The Payroll Department. With years of experience, The Payroll Department handles these kinds of complexities with ease. Give us a call at 317-852-2568 to talk to us about handling your payroll operation and simplifying your life.
Jessica of The Payroll Tax Department Blog