Guidelines for Local Tax Coding (Kentucky and Pennsylvania)

Guidelines for Local Tax Coding (Kentucky and Pennsylvania)

Each locality provides guidelines pertaining to depositing and reporting local income taxes. Local income taxes are deposited with either the local income agency, the state agency, or a third party private collection agency. Most localities require that a tax return be filed quarterly.

Some local taxes require a special setup on the payroll system. That is, each tax must be setup individually to ensure proper payment and reporting Kentucky and Pennsylvania have several of the more complicated localities. Properly coding these locals is critical.

Kentucky locals

The jurisdictions for Boone County and Louisville/Jefferson County of Kentucky require complex calculations and reporting techniques. Each local tax must be coded at the employee level as a single, unique item. Taxes that are coded at the employee level as deductions, rather than local taxes, are not forwarded to the Tax Service. Therefore, they are not deposited or reported on returns prepared by the Tax Service.

Neither the city of Louisville/Jefferson nor Boone County will accept your return if the wages and taxes are not reported correctly.

Louisville and Jefferson County

All employees with a business location within Jefferson County must withhold either the Louisville City Tax (1.45%) or the Jefferson County Tax (1.45%), and/or the Jefferson County School District Tax (.75%) for residents of Jefferson County with a residential zip code that begins with 402 and all of zip code 40118.

The following table summarizes the withholding requirements for the city of Louisville and Jefferson County's local taxes. If the rate and wage amounts are calculated incorrectly, your deposit and return will be rejected.

Boone County

All employers within Boone County must withhold Boone County Ordinance Tax and Mental Health Tax from all of their employees. Boone County School District Tax is also withheld from those employees who live and work in the Boone County school district. A street guide for the school district address parameters is available form the agency.

These taxes can become quite complex. Ordinance and Mental Health taxes are calculated with a fixed rate to a taxable wage limit. The School District tax is calculated with a fixed rate on total taxable earnings. Wages recognized as exempt by the IRS are also exempt from school district taxable wages.

The following table will help you to use the proper codes, rates and wage limits for Boone County taxes. If the rate and wage amounts are calculated incorrectly, your deposit and return will be rejected.

In order for wages and taxes to be allocated properly and to ensure the agency will accept your filings, it is very important that the taxes are reported separately as described above.

The wage limit for Boone County ordinance tax will increase to $38,475.00. In 2001 the tax limit will then increase to $307.80 for 2001.

Lexington and Fayette County

The Tax Service can not file your annual returns and W-2s if the following requirements have not been met during the entire calendar year.

• Lexington requires tax to be withheld at the rate of 2.25% for all employees that work in the city.

• Fayette County requires tax to be withheld at the rate of .5% for employees that live in the county. The zip codes involved are 40500 through 40599.

These are not considered primary and secondary tax codes as they are filed on separate tax returns. however, the same account number is required by both agencies. Also, the two agencies have the capability of auditing both agencies filings/payments.

Deferred Compensation is totally taxable. There is no wage limit for either tax.

Pennsylvania locals

The jurisdictions for many Pennsylvania locals require complex calculation and reporting techniques. Each local tax must be coded at the employee level as a single, unique item.

Pittsburgh

All employers with a business location within the city of Pittsburgh must withhold the Pittsburgh Resident/Non-Resident Tax (1%) from wages paid to resident and non-resident employees. The School District Tax (1.875%) must also be withheld from wages paid to employees who are residents of the school district.

Use the following tables for a quick reference.