Local Wages vs State Wages: Why They May Differ on Your Pay Stub

Your paycheck may show different wage amounts for local and state taxes, which can be confusing. These differences stem from tax rules that vary by city, county, and state, affecting how earnings are reported and taxed.

Understanding these discrepancies can help you avoid surprises during tax season and ensure withholdings are accurate.

Pay Stub Entries

Your pay stub breaks down earnings and deductions into categories that determine how wages are taxed. The gross wages section reflects total earnings before deductions, including hourly pay, salary, overtime, bonuses, and commissions. This figure serves as the basis for tax calculations but does not represent take-home pay.

Deductions fall into pre-tax and post-tax categories. Pre-tax deductions, such as 401(k) contributions and health insurance premiums, lower taxable income before federal, state, and local taxes are applied. Post-tax deductions, including wage garnishments or after-tax retirement contributions, are taken out after taxes.

Tax withholdings are listed separately, typically showing federal income tax, Social Security, and Medicare under the Federal Insurance Contributions Act (FICA). State and local tax withholdings appear in their own sections, sometimes with different taxable wage bases. Some states exempt certain types of income from taxation, while others apply a flat tax rate. Local taxes, if applicable, may be listed under city or county names, with separate line items for income tax, occupational taxes, or other levies.

Factors That Lead to Differences

The wages reported for state and local taxes on your pay stub may not always match due to tax regulations and payroll processing rules. These differences arise from where you live, where you work, and local laws that impact taxation.

Residency

Where you live affects how wages are taxed, especially if your home and workplace are in different jurisdictions. Some states, such as Pennsylvania and Ohio, impose local income taxes based on residency, requiring employers to withhold taxes for an employee’s home municipality even if they work elsewhere. Other states, like New York and New Jersey, have reciprocal tax agreements that prevent double taxation by allowing residents to pay income tax only to their home state.

For example, if you live in Philadelphia, which has a 3.75% resident tax rate in 2024, but work in a nearby suburb with a lower or no local tax, your pay stub may show different taxable wages for state and local purposes. Employers must follow local tax rules when calculating withholdings. Reviewing your residency-based tax obligations can help ensure the correct amount is deducted.

Multiple Work Locations

If your job requires you to work in different locations, your taxable wages may vary depending on the tax rates in each area. Some states and cities require employers to allocate wages based on where the work was performed, leading to different amounts being reported.

For instance, an employee who works part of the week in New York City, which has a 3.876% local tax for residents, and the rest in a New Jersey office may see different taxable wage amounts on their pay stub. Employers must track work locations and apply the appropriate tax rates.

Some states, such as California, require businesses to withhold state income tax based on where the employee physically works, even if the company is headquartered elsewhere. This means that if an employee works remotely from a different city or county, their taxable wages may be subject to different local tax rates. Employees who frequently change work locations should review their pay stubs to ensure taxes are withheld correctly.

Local Pay Ordinances

Certain cities and counties have local wage laws that affect how earnings are taxed and reported. These ordinances may include additional payroll taxes, minimum wage requirements, or special levies.

For example, San Francisco imposes a payroll expense tax on businesses with gross receipts over a certain threshold, which can influence how wages are reported. Similarly, Denver has an occupational privilege tax requiring employees earning above a set amount to pay a fixed fee per month. These rules can result in different taxable wage amounts appearing on your pay stub compared to state wages.

Employers must comply with local tax laws when processing payroll, which can lead to variations in reported earnings. If you work in a city with unique tax ordinances, reviewing your pay stub can help ensure the correct amounts are withheld. Checking with your employer or local tax authority can clarify any discrepancies.

How They Appear on Tax Documents

When tax season arrives, differences between local and state wages on your pay stub become more noticeable on official tax documents. Employers must report these figures separately on W-2 forms, which can sometimes cause confusion if the amounts don’t match.

– Box 16 of the W-2 shows state wages, while
– Box 18 reports wages subject to local taxation.

If you worked in multiple jurisdictions, you might receive multiple state or local wage entries, each reflecting the tax laws in those areas.

Discrepancies often arise due to taxability rules that vary between states and municipalities. Some states exclude specific types of compensation, such as employer-paid disability benefits or certain reimbursements, from taxable wages, leading to a lower figure in Box 16 than your total earnings. Conversely, some localities impose taxes on additional forms of income, such as bonuses or stock options, which can make Box 18 higher than expected.

For individuals who work in a jurisdiction with a local tax but live in an area without one, the W-2 may show wages in Box 16 but leave Box 18 blank, even though both figures appeared on the pay stub. This happens because local taxes are only withheld when required by law, and not all municipalities mandate employer withholding. Some workers may need to file a local tax return separately to report earnings.

Checking for Consistent Details

Ensuring that state and local wage figures are accurate requires careful review of payroll records, tax filings, and employer reporting practices. Even minor discrepancies can lead to incorrect tax assessments or withholding errors, which may result in unexpected liabilities or delays in processing refunds. Comparing year-to-date earnings, taxable wages, and reported income on tax documents can help identify inconsistencies.

One common source of discrepancies is payroll system errors, where outdated tax configurations or incorrect employee classifications lead to miscalculations. Employers must ensure that wage allocations comply with applicable laws, such as IRS Publication 15-T, which outlines federal withholding methods that interact with state and local tax structures. Employees should verify that their wages align with official tax tables for their jurisdiction and confirm that any pre-tax deductions, such as commuter benefits or flexible spending account contributions, are correctly applied to taxable income calculations.