1040-IN: County tax (CT-40, CT-40PNR)

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Overview

On Screen INGen in the General folder, use the fields in the County Tax section to enter applicable information for calculating county taxable income and county tax on Schedule CT-40 (County Tax Schedule for Full-Year Indiana Residents), Schedule CT-40PNR (County Tax Schedule for Part-Year and Full-Year Indiana Nonresidents), or Form IT-40RNR (Reciprocal Nonresident Indiana Individual Income Tax Return). In order to calculate total county tax, county taxable income must first be determined.

Determining the county tax rate

Indiana determines a taxpayer’s tax rate on county taxable income based on the taxpayer’s residency or employment status as of January 1 of the tax year.

If the taxpayer was not considered a resident of an Indiana county as of January 1 of the tax year but was considered as having principal employment in Indiana as of January 1 of the tax year, the principal employment income will be taxed for the applicable county.

If the taxpayer did not live in Indiana as of January 1 of the tax year and was not considered to be employed in Indiana as of January 1 of the tax year, the taxpayer is not subject to Indiana county tax for the year, even if their status changes after January 1.

Each of the 92 counties in Indiana has its own rate. For purposes of determining the proper county tax rate, it does not matter if the taxpayer’s county of residency status or county of employment status changes during the year. The rate itself is based on the taxpayer’s status as of January 1 of the tax year.

Note: It is possible for a taxpayer to be a nonresident of Indiana for state income tax purposes but be considered a resident of a specific county for county income tax purposes. Per Indiana Department of Revenue, the most common example of this is an out-of-state college student who may be considered a nonresident for state income tax purposes but who may be considered a Resident of the Indiana county in which they are housed while attending college in Indiana. This can be a great source of confusion as the income which is taxable for county purposes may be limited to Indiana sources yet the county income itself is taxed at the county Resident rate. Contact the Indiana Department of Revenue for further guidance.
Full-year Indiana residents:

If a taxpayer is a full-year resident of Indiana, then the Indiana Department of Revenue assumes they were a resident of one of the 92 counties in Indiana as of January 1 of the tax year. Certain military personnel are exempt from county tax. Use county code 00 on Screen INGen if applicable.

Part-year Indiana residents / nonresidents:

If a taxpayer is a resident of Indiana as of January 1 of the tax year, then the Indiana Department of Revenue assumes they were a resident of one of the 92 counties in Indiana as of January 1 of the tax year. Hence, any Indiana source income will be taxed for county tax purposes.

If a taxpayer is not a resident of Indiana as of January 1 of the tax year but is considered to be earning principal employment income in Indiana as of January 1, the taxpayer is taxed on the principal employment income.

If a taxpayer was not considered to be a resident of an Indiana county as of January 1 of the tax year and was not considered to have principal employment in Indiana as of January 1 of the tax year, there is no county tax.

Note: If taxpayer is not considered to be a Resident of any Indiana county as of January 1 and the employer withheld Indiana state or county taxes, but Indiana principal employment did not begin until after January 1 of the tax year, enter 00 for the County of employment on Screen INGen in order to show that taxpayer is not subject to county tax for the year.

Determining county taxable income

If the taxpayer is filing Single or Married Filing Joint and both live and/or work in the same county, county taxable income for Schedule CT-40 or Schedule CT-40PNR, Section 1 is based on the amount of state taxable income on Form IT-40.

If the taxpayers are Married Filing Joint but live or work in different counties, UltraTax/1040-IN calculates county taxable income via the Indiana Taxable Income Worksheet. The components of county taxable income are calculated on Tp/Sp basis to be used in the calculations of Schedule CT-40 or Schedule CT-40PNR, Section 1.

UltraTax/1040-IN calculates the income for Schedule CT-40PNR, Section 2 based on Indiana source wages and Indiana source income from Schedule C. [Per guidance from Indiana Department of Revenue, if Indiana wages are eligible to be included in county taxable income, use the amount from W-2 Box 16, not Box 18.] Use Screen INGen to force the amount reported on Schedule CT-40PNR, Section 2.

Residents of KY, MI, OH, PA, and WI

Residents of Kentucky, Michigan, Ohio, Pennsylvania, and Wisconsin who have Indiana source wages are not taxed on those wages on the Indiana nonresident return for state income tax purposes. However, those wages are still subject to Indiana county income tax, assuming the taxpayer was employed in an Indiana county as of January 1 of the tax year.

If taxpayer’s only Indiana source income and withholding is attributable to wages (W-2), taxpayer may be eligible to file Form IT-40RNR instead of Form IT-40PNR. See 1040-IN: Form IT-40RNR (Reciprocal non-resident return, County tax).

If the taxpayer does not qualify for filing Form IT-40RNR, UltraTax CS omits Indiana source wages from Column B on Schedule A if the taxpayer is designated as Nonresident in the File > Client Properties dialog, and the State of residency field on Screen INPYNR is KY, MI, OH, PA, or WI. Use the Instate taxable wages (Force) field on Screen INPYNR to force the amount reported on Schedule A.

The default calculation for Principal employment income on Schedule CT-40PNR, Section 2 includes all Indiana source wages. To force the Principal employment income taxable for county purposes on Schedule CT-40PNR, use the Principal employment income (Force) field on Screen INGen. Per guidance from the Indiana Department or Revenue, if wages are eligible to be included in county taxable income, use the amount from W-2 Box 16 (not Box 18).

Credit against county income tax

Schedules CT-40 and CT-40PNR do not have a provision for credits against county income tax. Instead, credits against county income tax are reported on Schedule 6 or Schedule G. Use State Use code 18 on federal Screen W2 for local wages/withholding from KY, MI, MO, OH in order to calculate the Indiana Credit for Local Taxes Paid Outside Indiana Worksheet. Or, use Screen INCr for data entry for credits against Indiana county tax.

Related topic: 1040 Indiana frequently asked questions

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