USPS Process Guide –
Appendix K – Local, State, and Federal Codes –
Local Tax Status

System does not withhold local taxes or accumulate taxable wages. Use this status when you are not required to report an employee’s income to the local taxing entity.

If withholding is not required but reporting taxable income is, see tax status 3 below.

System withholds the amount from the AMOUNT field, and also from the EXT AMOUNT field, if applicable.

Use this status if withholding is not required but reporting taxable income is. Do not enter any values in the AMOUNT or EXT AMOUNT fields in such a case.

1. Withholds taxes based on income earned in the work state, using tax tables and the number of exemptions. This is what will be reported to the work state local taxing entity.
2. Determines the tax status for the resident state local taxing entity, based on the following conditions:
   • If the status is 1 through 6, USPS records earnings from the work state as taxable income for the resident state; the system calculates withholdings based on the resident state local tax status. For example, if the local tax status for the resident state is 6, USPS withholds local taxes using the resident state’s tax tables, and also withholds the amount specified in the EXT AMOUNT field.
   • If the status is 9, USPS adds the amount earned in the work state to any earnings made in the resident state and records this total as the taxable wages in the resident state locality. Using the resident state’s tax tables and the number of exemptions, the system then calculates withholdings.
3. If the amount withheld in step 1 above is:
   • Greater than or equal to the amount withheld in step 2, USPS does not withhold any taxes for the resident state.
   • Less than the amount withheld in step 2, USPS subtracts the withholdings in step 2 from those in step 1 and records the difference as the amount withheld for the resident state local tax.

Use this status only for a local taxing entity in a work state. USPS records taxable wages and withholds for taxes based on earnings made in the work state, using the work state’s tax tables and the number of exemptions.

USPS then calculates the resident state local tax information as follows:

• If the resident state local tax status is 1 through 6, the system uses the income earned in the work state and calculates the withholdings, using the resident state local tax status.
• If the resident state local tax status is 9, earnings from the work state are added to the earnings from the resident state. Taxable income and withholdings will be calculated based on this combined amount, using the resident state’s tax tables and number of exemptions.

• Using this value for a local taxing entity in the employee’s work state, the system does not withhold taxes or accumulate taxable wages for the work state taxing entity. Instead, the system withholds taxes and accumulates taxable wages for income earned in the resident state only. No tax information is reported to the work state local taxing entity.
• Use this value as a tax status for a local taxing entity in the resident state only if the local tax status for the work state local taxing entity is 7, 8 or 9.
  • If the work state local tax status is 7, the system adds the earnings of the work and resident state localities together. It uses this total as the taxable wages for the resident state locality and calculates withholdings on this amount based on the tax tables and the number of exemptions in the resident state locality.
  • If the amount withheld is less than the amount that would have been withheld based on income from the work state locality alone (using the tax tables and number of exemptions for the work state taxing entity), USPS does not withhold any taxes for the resident state taxing entity.
  • If the amount withheld is greater than the amount that would have been withheld based on income from the work state locality alone (using the tax tables and number of exemptions for the work state taxing entity), the difference between the two withholdings is used as the withholding for the resident state taxing entity.

    Note: This combination of options 7 (for the working state locality) and 9 (for the resident state locality) is used only for certain types of reciprocal taxing.

  • If the work state local tax status is 8, the system adds the amount earned in the work state locality to the income earned in the resident state locality. Then the system both records taxable income and withholds taxes based on the tax tables and the number of exemptions for the resident state taxing entity.
  • If the work state local tax status is 9, the system uses the income earned in the resident state locality only. Then the system both records taxable income and withholds taxes based on the tax tables and the number of exemptions for the resident state taxing entity.