US payroll: state and local taxes
Everything below the federal line on a US payslip: the work and resident state, reciprocity and the resident credit, state disability and paid-leave programs, and city, county, school district and transit taxes — each a line on the payslip, a total of its own for the year and a box on the W-2.
Federal income tax and FICA are the same for everybody. Below them, what is withheld depends on where somebody works, where they live, and which city, county and school district each of those is in. TRANXACT works it out in the order a payroll department would, and every amount on the payslip comes with the sentence that explains it.
The tables shipped for 2026 cover all fifty states and DC, and each row names its source year in Source; where a state had not published 2026 figures, 2025’s are carried. Rates, brackets and wage bases change every year — check each one against the state’s or city’s own employer guide before a live payroll.
Where somebody works and lives
On the employee (HRMS → People → Employees):
- State of residence — empty means the same as the work state. A different state brings in reciprocity or the resident-state credit.
- Work locality — the city, PSD or district they work in, for local tax.
- Home locality — where they live. More than one (a city and a school district) goes on Local Tax Assignments.
The worker’s record has Withholding and Local taxes tabs showing their certificates and localities in one place.
State certificates
A state withholding certificate is a row on HRMS → Pay Setup → Withholding (W-4) with the state as its Jurisdiction, beside the federal W-4. It carries State allowances, Additional / estimated deduction allowances, Dependents (state), Elected rate (Arizona A-4), Extra withholding a period, Claims exemption and Withhold the work state despite reciprocity. Somebody with no state certificate is withheld on their federal filing status.
How a state withholds
HRMS → Tax & Filing → State Rates says, per state and year, which Method it uses:
| Method | What it means |
|---|---|
| none | No state income tax on wages. |
| flat | One rate on taxable wages (Flat rate). |
| graduated | A scale of bands, kept under State Brackets by filing status. A state with no married table withholds married filers on its single one. |
| ca_de44 | California’s DE 44 Method B in full: the low-income exemption, estimated deduction allowances, the standard deduction, the rate table and the exemption credit. |
The same row holds the deduction per allowance and per dependent, a credit per allowance (California, Delaware, Oregon), the standard deductions and low-income exemptions, whether federal tax is deductible and up to what cap, whether the state credits tax withheld by a work state, and whether it taxes non-residents at all.
Reciprocity and the resident credit
- Reciprocity. Where the work state has an agreement with the employee’s home state — Illinois with Iowa, Kentucky, Michigan and Wisconsin; Pennsylvania with New Jersey; and the Ohio, Indiana, Kentucky, Maryland, Virginia, West Virginia, Wisconsin, Minnesota, North Dakota, Montana and Arizona agreements — only the home state is withheld. Tick Withhold the work state despite reciprocity on the certificate if the employee has not filed the exemption form.
- DC taxes no non-resident: somebody who works in DC and lives elsewhere is withheld for their home state only.
- The resident credit. Otherwise the work state is withheld, and the home state too, less the credit it gives for the work state’s tax. A New Jersey resident working in New York has New York tax withheld, and New Jersey tax only where New Jersey’s comes to more.
State programs: SDI, family and paid leave
HRMS → Tax & Filing → State Programs holds what employees pay into in the state they work in, each with its employee and employer rate, annual wage base, weekly maximum or ceiling, and its W-2 box 14 label: California SDI; New Jersey TDI, FLI and employee UI; New York SDI and PFL; Rhode Island and Hawaii TDI; Washington PFML and WA Cares; the Massachusetts, Oregon, Colorado, Connecticut, Minnesota, Maine and Delaware paid leave programs; and employee unemployment in Alaska and Pennsylvania. The wage base is counted from the year to date, so a program stops at its cap.
Local taxes
HRMS → Tax & Filing → Local Tax Jurisdictions holds the cities, counties, school districts, Pennsylvania political subdivisions (PSDs) and transit districts, with their resident and non-resident rates and the rule that decides between them; graduated local scales are under Local Brackets. HRMS → Pay Setup → Local Tax Assignments says which localities an employee is taxed by, as a resident or as somebody who works there — the work and home locality on the employee count already; this is for anything more.
| Locality | How it is worked out |
|---|---|
| New York City | Residents only, on its own graduated scale (Local Brackets). |
| Yonkers | A resident surcharge worked as a share of the New York State tax, and a non-resident tax on wages earned there. |
| Pennsylvania Act 32 EIT | Earned income tax once, at the higher of the home rate and the work rate, with the PSD codes reported. |
| Pennsylvania LST | The local services tax, spread over the pay periods, with its low-income exemption and its annual cap. |
| Ohio municipal and school district | The work city first, then the home city less the credit it gives for what the work city took; a school district income tax on residents. |
| Detroit, Grand Rapids | Resident and non-resident city income tax. |
| Louisville, Lexington | Occupational license tax. |
| Maryland counties | On Maryland taxable wages, with the non-resident rate for somebody who works in Maryland and lives outside it. |
| Indiana counties | County income tax by the county of residence or work. |
| Denver and Aurora OPT | The occupational privilege tax: a flat monthly amount from the employee and another from the employer, once wages pass the threshold. |
| Oregon statewide transit, TriMet, Newark | Transit and payroll taxes, on the employee or the employer as each law says. |
The payslip, the year to date and the W-2
- The payslip has a line for each state, each state program and each locality, with the sentence that explains it.
- HRMS → Pay Processing → Year to Date by Jurisdiction keeps the wages and tax for each state, program and locality on its own. It is accumulated by payroll: correct the payslip and it follows.
- The W-2’s boxes 15 to 20 come from it — state, state wages and tax, local wages and tax and the locality name (W-2 box 20 name). A second state or locality goes on the second row (15b–20b). Box 14 lists the state programs.
Where it posts: Payroll Tax Accounts
HRMS → Pay Setup → Payroll Tax Accounts maps each kind of tax — FIT, FICA, SIT, STATE_PROGRAM, LOCAL, and the employer’s ER_FICA, FUTA, SUTA, ER_STATE_PROGRAM and ER_LOCAL — to the liability account it is owed on. Every type starts on 2110. Map a type to its own account and its tax posts there; whatever is not mapped, and any rounding, stays on 2110, so the journal always balances.
Who maintains it
The Payroll Administrator role (payroll-admin) keeps the pay setup, every employee’s certificates and localities and the tax tables, and runs payroll. It does not maintain the employee master — hiring, changing pay and terminating stay with HR, so one person cannot do both halves. A role that already maintains W-4 rows or State Rates is given the screens beside them, so it is not left with half a job.
Since 20 October Payroll Readiness shows W-4 / state gaps per pay group before it is run. See Payroll cycles: retro by recalculation, off-cycle and final pay runs, pay calendars per group and the Payroll Readiness board.