TaxBandits Knowledge Base

What is the difference between state income tax withholding and local income tax withholding in Form W-2?

State income tax withholding and local income tax withholding are two types of taxes that may appear on an employee's Form W-2.

State income tax withholding is a tax that is levied by the state government on an employee's income. Employers are required to withhold a certain percentage of an employee's pay and remit it to the state on the employee's behalf. The amount of state income tax withheld is based on the employee's income and the tax rates set by the state.

Local income tax withholding is a tax that is levied by local governments, such as cities or counties, on an employee's income. Similar to state income tax withholding, employers are required to withhold a certain percentage of an employee's pay and remit it to the local government on the employee's behalf. However, not all local governments impose an income tax, so employees may not have a local tax withholding on their W-2.

The amount of state and local income tax withholding that an employer withholds from an employee's pay depends on the employee's income, the number of allowances claimed on their W-4 form, and the tax rates set by the state or local government.

When an employee receives their Form W-2, they can use this information to complete their personal income tax return and determine whether they owe additional taxes or are entitled to a refund.