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If a person is claimed as a dependent on another person’s return AND have adjusted gross income less than $5,000, they are exempt from the City of East Lansing income tax. This does not impact the amount you are required to withhold. You should withhold from these individuals in the same manner as other employees. These individuals will receive a refund for their excess withholding after filing their annual tax return.
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If the employees work within the City of East Lansing, you are required to withhold from your employees whether they are an East Lansing resident or not. For residents, you are required to withhold 1% of their earnings and for non-residents working within East Lansing, you are required to withhold 0.5% of their earnings.If you have East Lansing residents as employees working outside the City of East Lansing, you are not required to withhold the East Lansing income tax, but the City does encourage courtesy withholding for your employee(s). If the income tax is not withheld from pay, a resident may be required to file quarterly estimated payments using form EL-1040-ES.
If the total amount withheld exceeds $100 per month, you are required to submit payment on a monthly basis using Forms EL-501 and EL-941. If the amount is less than $100 per month, you can submit payment on a quarterly basis only using Form EL-941.
You will need to begin withholding 0.5% for East Lansing and you will need to reduce the amount withheld for Lansing (or other city with an income tax) to 0.5%. This assumes the other city’s income tax rate is also 1%.
The employee can document the time worked outside of the City of East Lansing and will be refunded any excess tax withheld after they file their annual return. The employee will be required to submit documentation, certified by their employer, to substantiate the time worked outside of the City.
Non-residents of the City of East Lansing are subject to withholding only if the City of East Lansing is their predominant place of employment. An employee can have only one predominant place of employment. The ordinance defines predominant place of employment as “that city imposing a tax under a uniform city income tax ordinance other than the city of residence, in which the employee estimates he will earn the greatest percentage of his/her compensation, which percentage is 25% or more.” Although these individuals are not subject to withholding, they are nevertheless required to file an annual return and report the applicable income earned in the City of East Lansing. The individual should be encouraged to pay estimated tax payments directly to the City to avoid penalty and interest.
You will be required to send copies of the employees’ W-2s and any issued 1099s to the City of East Lansing. In addition, you will need to prepare an annual EL-W-3, reconciling the amount withheld and the amount paid to the City.
An employer using a payroll processing service for reporting withholding is required to complete Form EL-8655, Reporting Agent Authorization. The form can be found here.
If an employer with employees working within the City of East Lansing refuses to withhold the required taxes from their employees, they may be held liable for payment of the tax.
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