Test Your Payroll Tax Knowledge 2

An employee lives in Ohio and works in Pennsylvania. The employer has opted to not do any courtesy withholding for any local tax for employees who reside in Ohio. What taxation would be the most applicable for the employee and the employer liability tax portion?

 
A) Pennsylvania State Income Tax, Pennsylvania Local Tax, Pennsylvania Unemployment Employer Tax.

A) Incorrect. Only part of the statement is true. Ohio and Pennsylvania have reciprocal agreements. An employee residing in Ohio but works in Pennsylvania does not have to pay state income tax for where they work.

B) Ohio School District, Ohio State Income Tax, Pennsylvania Local Tax, and Pennsylvania Unemployment Employer Tax.

B) Correct. Ohio and Pennsylvania have reciprocal agreements. Therefore, the employee does not have to pay state income tax for where they work. Since the employee resides in Ohio, they would pay Ohio State Income Tax, any applicable School District Tax (as this is required and based on residence), and Pennsylvania Local Tax for where they work. The unemployment employer tax is sourced to the worked in and therefore the employer would be required to pay employer tax liability for Pennsylvania.

C) Ohio State Income Tax, Ohio School District Tax, Ohio Unemployment Employer Tax.

C) Incorrect. Only part of the statement is true. Even though the employee is taxed in Ohio for State Income Tax as well as any School District Tax, the employer must pay their unemployment tax liability portion based on where the employee works, which is Pennsylvania.

D) I am not sure.

D) No worries, the Payroll Tax Knowledge Center is here to help. The correct answer is “B.” Ohio and Pennsylvania have reciprocal agreements. Therefore, the employee does not have to pay state income tax for where they work. Since the employee resides in Ohio, they would pay Ohio State Income Tax, any applicable School District Tax (as this is required and based on residence), and Pennsylvania Local Tax for where they work. The unemployment employer tax is sourced to the worked in and therefore the employer would be required to pay employer tax liability for Pennsylvania.