Do I pay local income tax twice?

[Alizarin]

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.

[Hal_Al]

 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. 

[Alizarin]

"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." - Does that mean my employer should not have withheld local income tax? Or can they if they choose to? And if so, what permits them to have that option?

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?

[Hal_Al]

No.  Any Ohio city, with an income tax, is allowed to have withholding taken out of your pay while you worked in that city. Your employer is REQUIRED to do that withholding. He is not required to withhold for your residence city.
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.

[Alizarin]

Thank you. I appreciate the help.

[davepa37]

I live in Glenside, pa and work in Warminster, pa. Do I have to pay both local taxes

[Hal_Al]

@davepa37  You've tagged on to a thread about OH city income tax.  You may want to ask a fresh question, in hopes of finding someone familiar with PA  wage (occupational) tax. 

The general rule, in most states, is that must file a return for the city you live in, but they give you a credit, or partial credit, for any tax withheld for the work city.