Does anyone else's city tax like this?

[MSWR0319]

We just moved into town from the country two years ago. Last year we had to pay city tax but thought it had something to do with the fact that we moved mid year. This year we just got a letter from the city that says we owe $400 when our accountant calculated nothing. The letter goes on to say that we owe this because she used the wrong amount and that they tax gross income, meaning they tax our 401K contributions, HSA contributions, etc. This makes no sense to me! They make it sound good saying that they then don't tax you when you pull it out, but that really doesn't make me feel better. We may not be living here when we start pulling out of our 401ks, we may be in a different tax bracket, we may have lost money in the market, all of which means we would have been way over taxed. Does anyone else live in a city that does this? There has to be an explanation but I can't come up with it. DH is going to see the accountant tomorrow to see what the story is and why she did it wrong since she is in our city.

[marymoo86]

What? It's not based on property tax rate? Taxes on income for local?

[Octobermommy]

What state do you live in? Doing some research it looks like certain locations do tax 401k contributions. That’s crazy to me! Bummer. Let us know what the accountant says

Eta: look at box 18 of your w-2. Are the wages the same as the wages for federal taxes? That is the local taxable amount

[sariana]

Some cities do have a city tax. Detroit is one example. They charge a tax on top of state taxes. Other MI cities do not do this.

It's probably impossible for anyone to advise you without knowing what city you live in.

[NCGrandma]

Just to clarify: OP, are you talking about city income tax? Does your state also have state income tax? And also property tax?

Many years ago, I lived briefly in a city in KY that had city income tax, my only experience with this. It was just withheld from paychecks, no returns or accounting involved. Mercifully my own experience with local income tax.


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[scrooks]

We have a city tax where we live. I work within city limits so they automatically take it out of my paycheck. I actually don’t quite understand the process. When I lived in the same city I worked in I had to file a very simple city tax form. Now that I live in a township I no longer have to do the paperwork. We also have a state tax fwiw but none of these entities tax 401ks.

[MSWR0319]

Just to clarify: OP, are you talking about city income tax? Does your state also have state income tax? And also property tax?

Many years ago, I lived briefly in a city in KY that had city income tax, my only experience with this. It was just withheld from paychecks, no returns or accounting involved. Mercifully my own experience with local income tax.


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Yes, I'm talking about a city income tax. We also have property taxes and state income tax. Our state income tax is based off of gross minus 401K, etc ( I forget the box number.) Same number as federal tax. Apparently our city tax is based off of gross which we never realized because we always lived a mile outside of city limits. DH's employer is based in another state and it is withheld from his check, but they are withholding based on the same number as state and federal and not gross. I've been trying to research and see that cities are allowed to do it, but it doesn't mention how it's handled when you withdraw from your 401K that's already been taxed. I'll update after we talk to the accountant!