Courtesy Withholding

Courtesy withholding is when an employer withholds and remits a tax when they are not legally obligated to do so, as a courtesy for an employee to avoid he or she needing to pay a large sum in their personal tax return. In general, courtesy withholding involves withholding taxes based on an employee's residence location, instead of their work location. However, there are additional, specific nuances to what courtesy withholding means for each tax.

Check supports courtesy withholdings in several different tax scenarios. This document will outline those scenarios, how to enable courtesy withholding, and what to expect in regards to tax calculation for each one.

In Ohio, employees are subject to a municipal income tax (also known as a "City Tax") in both the municipality in which they live and the municipality in which they work. To avoid double taxation, many Ohio cities offer their residents tax credits for taxes they pay to other Ohio municipalities.

Employers are required to withhold Ohio City Taxes for employees in the cities in which they work, but not where they live. Withholding an employee's residence Ohio City Tax is considered a courtesy withholding.

In Check, courtesy withholdings are not applied by default, and Ohio City Taxes will only be withheld in the city of the employee's workplace. For example, if an employee is living Dayton and working in Cleveland, they will only see Cleveland City Tax withheld from their paycheck.

If an employer wishes to enable courtesy withholding for Ohio City Taxes, they have the option to do so with a company-defined attribute called "Courtesy withhold Ohio City Taxes". Company-defined attributes are employee-level payroll information that is provided by the company. Enabling this option for an employee will begin withholding the employee's resident city tax; so using the example above, the employee would see both Cleveland City Tax and Dayton City Tax withheld from their paycheck.

When enabled, Check will also automatically calculate the credit applied to the resident city tax for nonresident taxes paid, and reduce the resident city tax by that amount.

Finally, enabling this company-defined attribute may also cause additional setup parameters to be prompted; for example; the employer will be required to provide a withholding EIN for the resident city tax. These parameters are necessary to ensure that Check is able to correctly calculate, remit, and file for the tax.

Similar to Ohio City Taxes, employees in Pennsylvania are subject to an Earned Income Tax (EIT) based on both their residence and work municipalities.

If a Pennsylvania residents work entirely out-of-state, then by default, their out-of-state wages are not counted towards the calculation of their resident EIT. Withholding the employee's resident EIT on wages earned out-of-state is considered a courtesy withholding.

Employers have access to a company-defined attribute, "Courtesy Withhold Pennsylvania Earned Income Taxes", which enables this behavior for a specific employee. When enabled, the employer may see additional setup parameters to be prompted, such as the withholding EIN for the employee's resident EIT.

In Oregon, there are three (3) local taxes that have a notion of courtesy withholdings. They are:

For each of these taxes, by default, Check will only calculate and withhold the tax on wages earned in each respective jurisdiction. For example, a resident of Portland, OR will only have Metro SHS Tax calculated on wages earned in the Portland Metro area.

Withholding these taxes for residents on all wages earned, regardless of their workplace location, is considered a courtesy withholding for each of these taxes.

This setting is enabled with a company-defined attribute, "Courtesy Withhold Oregon Local Taxes". Note: In addition to enabling this company-defined attribute, the employee must have a workplace assigned in the tax's jurisdiction in order for the tax to be withheld.

For example, if an employee is living in Portland, OR and working in Vancouver, WA, and wishes for Metro SHS to be courtesy withheld, they must also have a workplace assigned in Portland, OR.