School District Income Tax | Employer Obligations & More

A Closer Look at School District Income Tax

school district income tax in regards to payroll software

Public schools depend on funds offered by the government for providing free basic education to children. These funds usually include a combination of school taxes and grants. There are primarily two types of school taxes: property taxes and school district income taxes. Both of these taxes are administered on a local level.

School district income tax is currently only applicable in certain areas of Ohio and Pennsylvania. In areas where this tax is imposed, it is applicable to all the residents within a particular school district. The obligation to pay school district income tax remains unaffected, regardless of whether a person works within or beyond the district borders. Although distinct from state and federal taxes, the functioning of the tax is similar.

Based on the area, school district income tax may either be imposed only on earned income, or it may be based on income guidelines similar to those for state and federal income taxes. In certain states like Ohio, each district is given the right to formulate and impose its own tax policy based on a vote among the residents of the school district.

School district income tax has two types of tax bases: earned income tax base and traditional tax base. Earned income tax base only includes self-employed and earned income. All other kinds of income like pension, capital gain, dividend and interest are excluded.. Income adjustments allowed in case of federal returns like alimony payments and IRA contributions are also excluded from the earned tax base. In case of the traditional tax base, the income base used is same as that for state income tax.

Collection methods such as annual returns, individual quarterly estimated payments, and employer payroll withholding are used for school district income tax collection. In areas where this tax is applicable, employers need to withhold the tax and submit the same to the state. The guidelines and rules for withholding tax are same as those for the state income tax. Taxpayers subject to this tax need to file a school district income tax return every year.

For more information on school districts in Ohio with an income tax, refer to the Ohio Dept. of Taxation. For more information on Pennsylvania school district income taxes, see the Pennsylvania Dept. of Revenue.

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