RITA sent me an audit for 2 years of back taxes, without prior communication. I worked in Cleveland and lived in Shaker Heights. In my W2's I local income tax was withheld for Cleveland in both years. This seems incorrect.
Yes, you have to file a RITA return for Shaker Hts. Any Ohio city, with an
income tax, is allowed to have withholding taken out of your pay while you
worked in that city (Cleveland in your case). Your employer is required to do that withholding. If
you live in a city with an income tax, you are subject to that city's tax as
well (Shaker Hts, in your case). The city you live in will usually allow a credit
or partial credit for the withheld tax you paid to the work location city. Shaker Hts only allows a 1% credit, so you will be owing for both years.
You normally only have to
file a return in the city you live in. It is not necessary to file one in the
city you work in.
I apologize for the questions, this just seems counter-intuitive and I'm trying to understand this. Using arbitrary values of "1" for each, if I lived in Cleveland, I would be paying 1 local income tax, but simply by living in Shaker Heights I pay 2? Would it not make more sense for someone living and working in Cleveland to pay 1 local tax for the city of employment and 1 for the city you live? Does this mean anyone who works in Cleveland but lives in any other region other than Cleveland proper is paying double as well?
Employers are only required to withhold for the work city, although many will voluntarily withhold for the resident city as well. Employees of most big companies, in Ohio, seldom owe any city tax, at tax time (but they still have to file a resident city return), because the employer holds out exactly the right amount for both work and resident city, taking into account the credit.
Yes, many people pay have to both cities, although "double" is rare. You will not be paying Shaker Hts the full rate, after the 1% credit. But not all people have to pay twice, many cities allow their resident a full credit for what they paid the work city.
Yes, there may be a better way to administer the system. But, this is the one we have to live with. You're not the first one to have to find out about this the hard way.