Overview: Courtesy withholding occurs when an employer voluntarily withholds and remits taxes they aren’t legally required to withhold, as a courtesy to help employees avoid a large sum due on their personal tax returns. Typically, this involves withholding taxes based on an employee’s residence rather than their work location. However, the specifics of courtesy withholding can vary depending on the tax jurisdiction.
Instructions:
Ohio City Taxes
In Ohio, employees are subject to municipal income taxes (City Taxes) both where they work and where they live. To prevent double taxation, many cities offer residents tax credits for taxes paid to other municipalities.
By law, employers must withhold City Taxes for the city where an employee works, but not where they live. Withholding for an employee’s resident city is considered a courtesy withholding.
By default, Buddy Punch only withholds taxes for the work location. For example, if an employee lives in Dayton but works in Cleveland, only Cleveland City Tax will be withheld from their paycheck.
If you wish to enable courtesy withholding for Ohio City Taxes, you can do so by updating the “Courtesy Withhold Ohio City Taxes” dropdown in the employee's payroll profile. Once enabled for an employee, Buddy Punch will withhold both the work and resident city taxes—for example, both Cleveland and Dayton City Taxes.
Buddy Punch will also automatically apply the appropriate tax credit to reduce the resident city tax based on non-resident taxes already paid. Enabling this setting may prompt you to provide additional details, such as the withholding EIN for the resident city, to ensure accurate filing and remittance.
Pennsylvania Earned Income Taxes (EIT)
In Pennsylvania, employees are subject to Earned Income Tax (EIT) based on both their work and residence municipalities.
If a Pennsylvania resident works entirely out-of-state, their out-of-state wages typically aren’t subject to resident EIT by default. Withholding the resident EIT on these out-of-state wages is considered a courtesy withholding.
Employers can enable this in the employee's payroll profile under the “Courtesy Withhold Pennsylvania Earned Income Taxes” dropdown. Once activated, you may be asked to provide additional information such as the withholding EIN for the employee’s resident EIT.
Oregon Local Taxes
In Oregon, there are three local taxes where courtesy withholding may apply:
Metro Supportive Housing Services (SHS) Tax (Portland Metro residents)
Multnomah County Preschool For All (PFA) Tax (Multnomah County residents)
Oregon Statewide Transit Tax (Oregon residents)
By default, Buddy Punch calculates and withholds these taxes based on wages earned in the specific jurisdictions. For example, a Portland resident will only have the Metro SHS Tax withheld on wages earned in the Portland Metro area.
Withholding these taxes on all wages, regardless of workplace location, is considered courtesy withholding. This can be enabled using the “Courtesy Withhold Oregon Local Taxes” in the employee's payroll profile. Note: To activate this, the employee must also be assigned a workplace within the tax jurisdiction.
For instance, if an employee lives in Portland but works in Vancouver, WA, and wants the Metro SHS Tax courtesy withheld, they must also have a workplace assignment in Portland within Buddy Punch.
How to Enable Courtesy Withholding
To opt your employee into Courtesy Withholding for the applicable jurisdiction, you will navigate to Payroll > People > Click View next to the employee's name.
From there, you will click on Edit:
Once you are on the Edit screen, you will select either "Yes" or "No" in the Courtesy Withholding dropdown and click Save:
