Processing and Changing City or Local Taxes

City tax is withheld for the city where the employee works and/or resides. This is determined by the city taxing authority. When city taxes are mandatory for an employee's duty station and residence, the duty-station city tax takes precedence. 

City taxes are withheld each pay period through payroll deduction based on the processing of a tax document; however, some taxes are computed based on a percentage of gross wages or on a specific dollar amount designated by the taxing entity and do not require the declaration of exemption information. Additionally, the Department of the Treasury (Treasury) entered into an agreement with some taxing entities (city, county, state, territorial, and the Republic of Panama) for mandatory tax withholding based on place of employment (e.g., duty station).

For processing purposes, the tax year usually begins in Pay Period (PP) 25 and ends in PP 24. All taxes withheld for those inclusive pay periods are reported on the IRS Form W-2, Wage and Tax Statement.

Treasury Tax Withholding Agreements

Table Management System (TMGT) Table 049, NFC ALLTAX Conversion, contains the taxing authorities’ identification (General Services Administration (GSA) location codes - state, state and city, or state and county, and the applicable ALLTAX code) used in the National Finance
Center (NFC) Payroll/Personnel System (PPS). It converts taxing authority identification codes (GSA location codes) to the applicable ALLTAX code. ALLTAX calculates taxes on the Federal, state, city, and county levels. The code identifies the specific tax computation routine.

Some employees may want taxes withheld for a city that does not have an agreement with Treasury. The employee should request the city work with Treasury to establish an agreement. The basic requirements to obtain a withholding agreement with Treasury include:

• The tax may not be a school district tax.
• The tax may not be voluntary.
• At least 500 Federal employees (not necessarily from the same Federal Agency) must be affected by the tax.

For additional information, contact Treasury at the following address:

U.S. Department of Treasury
Financial Management Service
Liberty Center, Room 310
401 14th Street, S.W.
Washington, D.C. 20227
ATTN: Terrisa Widener and Tyrone Lynn

Establishing a City Tax

A city tax record is established at the time the accession personnel action and/or tax forms are processed. City taxes are entered into NFC's PPS using Document Type 150, City Income Tax Certificate. If a document is not processed, NFC's PPS withholds taxes at the highest rate applicable. Most cities allow employees to authorize an amount withheld from salary each pay period in addition to the amount automatically withheld in accordance with the income tax formula.

The employee should complete the applicable tax form to authorize withholding and claim exemptions in the following cases:

• When the employee's exemption status (marital status and/or number of exemptions) is required in the computation of the tax.
• When the employee is exempt from withholding.
• When the employee authorizes additional withholding.
• When the employee reduces the tax withholding by estimating a percentage of work performed outside the duty-station city.
• When the employee is voluntarily electing city tax.

The rules for establishing city tax withholdings in NFC's PPS include:

• When the duty station has a mandatory tax withholding agreement and a new tax certificate is not processed, NFC's PPS withholds at the highest taxable rate. The user should select the applicable state for that employee to get the tax formula. To view a list of tax formulas, go to the HR and Payroll Clients page from the MyNFC drop-down menu on the NFC Home page. Select the Publications tab and select Taxes from the Publications Library.
• A new tax certificate may be processed at any time to change an employee’s tax information.
• A new tax certificate must be processed when the employee changes residence city/county/state and/or duty station to another city/county/state because all previous exemptions, additional withholdings, etc., are removed and must be reprocessed, if applicable.
• When an employee transfers from an Agency in one Central Version (CV) or database to an Agency in the same CV or database within NFC's PPS, the taxes deducted
  Year-to-Date (YTD) are carried forward to prevent overpayment of taxes.
• When an employee transfers from an Agency in one CV or database to an Agency in another CV or database within NFC’s PPS, the taxes deducted Year-to-Date (YTD) do not carry forward. The Agency must enter the YTD tax withholding data using Document Type 030, Master File Change.
• When an employee transfers into an Agency serviced by NFC's PPS from an Agency serviced by a different payroll office, the Agency must enter the YTD tax withholding data from the prior payroll office using Document Type 030. 
• When an employee transfers into an Agency serviced by NFC's PPS from an Agency serviced by a different payroll office, the employee must submit a new tax certificate at the time the accession action is processed.
• When an employee is hired from outside the Federal government, the Agency must enter the YTD tax withholding data from the prior payroll office using Document Type 030.
• If the city ordinance contains provisions which allow an employee to waive or claim exemption from the tax, an exemption certificate, FMS-7311, Employee’s Withholding Certificate for Local Taxes (city or county), must be processed indicating the employee is not liable for the tax. 
• A city tax reduction is allowed when the employee performs 25 percent or more of work outside the duty-station city and opts for a reduced withholding amount. The percentage of time the employee works outside the duty-station city should be entered. If the conditions under Voluntary Withholding of City Taxes is met, an employee may choose to have taxes withheld based on residence.

Voluntary Withholding of City Taxes

Several taxing entities that do not have agreements with Treasury are established in the applicable database for voluntary tax withholding. Tax data must be processed for these entities to withhold taxes. Voluntary withholding is determined based on residence. An employee may choose to have taxes withheld based on residence if the following conditions are met:

• The residence city, county, or state is established in TMGT.
• The mandatory duty-station tax is waived (if allowed).
• The residence tax locality on the tax form agrees with the residence tax locality of the duty station.

Voluntary city tax withholding terminates when:

• The city revokes its tax withholding law or agreement with Treasury.
• A cancellation of voluntary withholding is processed.

Note: In situations where the taxing entity is not established for voluntary tax withholding or the employee is responsible for paying taxes on both the duty-station city and the residence, the employee may establish a financial allotment to have funds sent to the appropriate city taxing authority. When this occurs, it is critical for the employee to remember to cancel the allotment prior to any changes (e.g., moving to another city) that affect the tax status. If the employee forgets to cancel the allotment, the employee must work with the city to obtain a refund of any overpayment. 

Verifying City Tax Data

Use the following resources to verify data on Document Type 150, City Income Tax Certificate:

• Information/Research Inquiry System (IRIS) Program IR103, Salary YTD Data
• Payroll/Personnel Inquiry System (PINQ) Program PQ32, Payroll Listing
• PINQ Program PQ75, PACS City Tax
• Listing of Personnel Error Messages Report listed as Document Type 150, City Income Tax Certificate
• TMGT Table 007, City Tax, City Name and Address
• TMGT Table 049, NFC ALLTAX Conversion
• TMGT Table 067, Tax Entities Report Frequencies
• TMGT Table 068, NFC Pay Period Cutoff for Tax Reports
• TMGT Table 073, Pennsylvania Local Services Tax
• Form AD-334, Statement of Earnings and Leave

Refunds of City Taxes

NFC is unable to refund city taxes after they are disbursed to the applicable city or state. Refunds for city taxes must be submitted via the Web-based Special Payroll Processing System in the pay period they were withheld and prior to the disbursement of the funds.