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Income Tax

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1. How do I handle the 07/01/18 tax rate increase for withholding purposes?

Employers should begin the withholding with your last payroll in June, which will be your first payroll paid after July 1st.

Please pay particular attention to the bold-ed language from Canton's Income Tax Code, below.

     182.051 COLLECTION AT SOURCE; WITHHOLDING FROM QUALIFYING WAGES.
(A) (1) Each employer, agent of an employer, or other payer located or doing business in the Municipality shall withhold from each employee an amount equal to the qualifying wages of the employee earned by the employee in the Municipality multiplied by the applicable rate of the Municipality's income tax, except for qualifying wages for which withholding is not required under section 182.052 of this Chapter or division (D) or (F) of this section. An employer, agent of an employer, or other payer shall deduct and withhold the tax from qualifying wages on the date that the employer, agent, or other payer directly, indirectly, or constructively pays the qualifying wages to, or credits the qualifying wages to the benefit of, the employee.

2. What is form 2106?

We apply essentially the same guidelines to 2106 expenses as does the federal government. Expenses must be carried forward to Schedule A, reduced by the 2% Adjusted Gross Income (AGI) floor. We allow the deduction of Employee Business Expenses as reportable on the taxpayer's form 2106, subject to audit and approval by the Income Tax Division.
                        
For verification it is necessary that a copy of the Schedule A, and a detail statement of any Line 4 deduction, "Business Expenses not included on lines 1 through 3," also must be submitted. Please note: other miscellaneous deductions shown directly on Schedule A are not deductible on Canton's tax return. 

3. What are Estimated Quarterly Returns?

Declaration of Estimated Tax Frequently Asked Questions (F.A.Q.s)

1. What is a Declaration of Estimated Tax?
   Any Canton taxpayer who expects to receive taxable income that has no tax withholding (or less than 2.25% tax withheld) must Declare that income at the beginning of the year, and pay the estimated tax on it quarterly. Basically, if an employer doesn’t withhold city tax, taxpayers must withhold it from their own pay, and remit it to the City themselves.
2. Who must file a Declaration?
   Any person who receives taxable wages which are not subject to withholding at the source by his or her employer must file a “Declaration of Estimated Tax.” Example: XYZ Corporation in Plain Township employs a Canton resident. XYZ Corp. does not withhold Canton city income tax from the employee’s paycheck, so the employee must file a Declaration.
   
   Any person who anticipates taxable income from a business, profession, enterprise, or other for-profit activity which is subject to the Canton city income tax. Example: A nonresident of Canton operates a Lawn care/Landscaping service which has customers inside the Canton city limits. He must file a Declaration of Estimated Tax on that income.
3. Is there a penalty for failure to file a Declaration?
   Yes! The Declaration of Estimated Tax is required by Law. The failure to file a bonafide Declaration will result in a penalty of 15% of the unpaid balance and an additional interest assessment.
4. What is a bonafide Declaration?
   A bonafide (“good faith”) Declaration is one in which the combination of the taxes withheld and the estimated taxes paid total 90% or more of the tax obligation shown on the taxpayer’s income tax return. Payments of estimated tax plus any other credits must equal 90% of the final liability to avoid the fine and interest penalty. Estimated credits equal to at least 100% of the prior year’s final liability will not be penalized either. Example: A small-businessman, who owed $300.00 on the prior year’s tax return, files a Declaration of Estimated Tax for the current year, of $270.00. On the final tax return, it is determined that his tax obligation was actually $350.00. The Declaration was less than 100% of the prior year’s tax liability and was only 77% of the current tax obligation, rather than the 90% required to be in “good faith.”
5. How much is the penalty and interest?
   The amount of penalty and interest depends upon the estimate requirement (90% of the tax obligation), and total credit on the tax return (withholding + estimate payments). When the tax return is filed, an auditor will multiply the tax obligation by 90% to find the bonafide Declaration amount. That amount is divided by four, to establish the installment amount that should have been paid quarterly. The quarterly installment due is compared with the combined estimate and withholding payments from each quarter. Any difference will be subjected to penalty of 15%. Interest will also be imposed at the federal short term rate rounded to the nearest whole percent, plus five percent.
6. Does Canton give credit on the Declarations for taxes withheld and paid to another city?
   Yes. Canton gives full credit (up to 2.5%) on the Declaration of Estimated Tax for withholdings due and payable to another city. However, a Canton resident who works in a city whose tax rate is less than 2.25% would have insufficient credit to avoid falling below the “90%” test. Taxpayers working in North Canton, Canal Fulton, East Canton, and any of the townships will need to file the Declaration and pay estimated tax in order to meet the good faith requirement.
7. How will the public know about this mandatory Declaration of Estimated Tax requirement?
   It’s on the tax form, and in the “General Information Sheet” and “Line-by-Line Instructions” which are available here. The estimate remittance forms are available here as well. Also, our auditors will try to identify taxpayers who file returns reporting total credits which are less than their actual tax obligations by 11% or more, and a letter and this FAQs sheet will be sent to each, informing him or her of the Declaration requirement. Ultimately, though, the Declaration of Estimated Tax is your responsibility - not the tax department’s.
8. When should the Declaration be filed?
   The Declaration is due with the annual city income tax return every year; however, it may be filed separately, as late as April 15, without incurring any penalty.
9. When are the payments due, and how much are they?
   At least one-fourth (1/4) of the estimated tax due should be paid with the previous year’s annual return and the current Declaration: on or before April 15.
   
   It’s really simple: the tax on the income you make in January, February, and March is due to the City in April. For April, May, and June, the tax is due June 15. For July, August and September, the tax is due September 15. And for October, November, and December, the tax is due January 15. You withhold the tax from your own pay, and remit it to the City just as if the employer were doing it. Please note carefully: the Canton city income tax department will not send a statement of estimated tax due every quarter. Instead, the quarterly statements have been included with the annual tax return. For individuals, the remittances will be due April 15, June 15, September 15, and January 15. For businesses, the remittances will be due on the 15th day of the fourth, sixth, ninth, and twelfth month of their filing year. Please mark your calendar and be sure to file your estimates timely.
10. What should I do if the original Declaration needs to be changed?
    In order to account for mid-year changes in income, employment status, etc., a Declaration of Estimated Tax can be amended as needed, at any time. Simply adjust the amount due on your next quarterly statement of estimated tax by writing in your amended figures, and send it in by the next quarterly deadline.
11. What if I have more questions, or I just don’t get it?
    Call the income tax department! Our auditors will be glad to assist you, and answer all of your additional questions.

4. How do I handle stock options?

The difference between the "issue price" and the "market price at exercise" is taxable when the stock option is exercised. 

5. How do I handle Early Retirement - Separation Payouts?

"Early retirement incentive programs" and separation payouts (termination pay, golden parachutes, etc.) are taxable if the recipient was employed within the city of Canton at the time of retirement, regardless of the employees residency status. Resident taxpayers' separation payments are considered taxable, regardless of employment location; however, credit is given for taxes lawfully imposed and paid to the city of employment, up to 2.5%.

6. How do I handle Lump Sum Distributions?

Lump sum distributions made from qualified pension and profit-sharing trusts, and not made pursuant to an employee's retirement, are taxable.

7. How do I submit Federal Schedules?

When submitting copies of federal schedules please remember to copy both sides of the schedules where appropriate. As an example, often we receive a copy of Schedule C and the taxpayer has copied only the front side of the schedule. This delays processing the return until the remainder of the information is available.

On Schedule E the addresses of the rental properties is necessary information, but it is sometimes missing. Also, this schedule needs to accompany the Canton tax return even if a loss is shown.

8. What if I do not include a payment with my return?

Taxpayers who file a return timely but do not include payment with the return will be assessed interest penalties up to the time the payment is made. If a taxpayer is financially unable to meet the tax obligation, an installment payment agreement might be allowed, at the discretion of the Income Tax Division.

9. What are "Qualifying Wages"?

"QUALIFYING WAGES" means wages, as defined in section 3121(a) of the Internal Revenue Code, without regard to any wage limitations, adjusted as follows:

1. Deduct the following amounts:
   1. Any amount included in wages if the amount constitutes compensation attributable to a plan or program described in section 125 of the Internal Revenue Code.
   2. Any amount included in wages if the amount constitutes payment on account of a disability related to sickness or an accident paid by a party unrelated to the employer, agent of an employer, or other payer.
   3. Any amount included in wages that is exempt income.
2. Add the following amounts:
   1. Any amount not included in wages solely because the employee was employed by the employer before April 1, 1986.
   2. Any amount not included in wages because the amount arises from the sale, exchange, or other disposition of a stock option, the exercise of a stock option, or the sale,    exchange, or other disposition of stock purchased under a stock option. Division (FF)(2)(b) of this section applies only to those amounts constituting ordinary income.
   3. Any amount not included in wages if the amount is an amount described in section 401 (k), 403(b ), or 457 of the Internal Revenue Code. Division (FF)(2)(c) of this section applies only to employee contributions and employee deferrals.
   4. Any amount that is supplemental unemployment compensation benefits described in section 3402(o)(2) of the Internal Revenue Code and not included in wages.
   5. Any amount received that is treated as self-employment income for federal tax purposes in accordance with section 1402(a)(8) of the Internal Revenue Code.
   6. Any amount not included in wages if all of the following apply:
      1. For the taxable year the amount is employee compensation that is earned outside of the United States and that either is included in the taxpayer's gross income for federal income tax purposes or would have been included in the taxpayer's gross income for such purposes if the taxpayer did not elect to exclude the income under section 911 of the Internal Revenue Code;
      2. For no preceding taxable year did the amount constitute wages as defined in section 3121 (a) of the Internal Revenue Code;
      3. For no succeeding taxable year will the amount constitute wages; and
      4. For any taxable year the amount has not otherwise been added to wages pursuant to either division (FF)(2) of this section or section 718.03 of the Ohio Revised Code, as that section existed before the effective date of H.B. 5 of the 130th general assembly, March 23, 2015.

10. What is witholding?

Any taxes withheld by an employer are held in trust. It is illegal to withhold any sum and not subsequently forward it to the Division of Taxation as required by the Income Tax Code. Businesses must deposit withheld taxes semi-monthly, monthly or quarterly, depending upon the amount withheld.

11. What are extensions?

Unless there are unique circumstances (determined on a case-by-case basis), no extension for filing a year-end tax return or making the required year-end payment will be granted for any individual or business whose account is in a delinquent status with us. The delinquency can relate either to documents that have not been filed or to payments that have not been made.

Also, filing an extension with us does NOT relieve the responsibility for making full payment by the original due date, of the tax anticipated due.

12. What is the City of Canton Income Tax Rate and what type of Income is taxable?

The income tax rate is two and a half percent (2.5%). Generally, qualifying wages (including most income which is deferred) and business net profits are taxable. A list of taxable and non-taxable income is available at this website.

13. What if I reside in Canton and work in an area with no municipal tax. How often must I file with Canton?

You must file a Declaration of Estimated Income Tax by April 15th of each year, if the estimate of tax that will not be withheld exceeds two hundred dollars ($200.00) On it you must estimate the amount of tax you will owe for the year. One-fourth of the estimate must be paid with the Tax Return/Mandatory Declaration form. Subsequent payments are due June 15th and September 15th, and December 15th.

14. Is there an age limit for individuals subject to Canton Income Tax?

Yes. All individuals under eighteen years of age are exempt from City of Canton Income Tax and are eligible for a refund of municipal tax withheld. Senior Citizens aged 65 and older whose income is comprised entirely of non-taxable benefits and earnings such as pensions, social security, etc., may file an exemption form with a copy of their Drivers License or Birth Certificate, and the account will be closed.

15. I am over 65. I am retired. My only income is from Social Security, company pension, interest, and dividends. Am I required to file a City of Canton Income Tax Return?

No. You are not required to file an income tax return with Canton, nor are you taxed by Canton on these types of income. However, you must file a one-time exemption certificate with us so we will not send you income tax returns in future years.

16. If an individual files late, is there a penalty?

Yes, a fine of $25 per month will be assessed in each of the first six months, a penalty of 15% of the tax balance due will be imposed immediately upon filing, and monthly interest will be charged.

17. Can I receive assistance in preparing my City of Canton Income Tax Return?

Yes. The Income Tax Division personnel can assist you either by telephone, mail, or in person. If you visit the Tax Office please bring a copy of your Federal Income Tax Return and all W-2's and 1099's. These will help us assist you in preparing your Canton Tax Return.

18. Can I obtain a copy of the City of Canton Income Tax Ordinance?

Click on Ordinances on the top of this page to view the tax ordinances online.

19. What is an Independent contactor?

Many individuals claim to be operating as independent contractors, and some employers have classified certain employees as independent contractors. However, we follow the federal guidelines for determining "independent contractor" status.

20. What must I do if I am a contractor?

All contractors must be registered with the city's Income Tax Division before performing work within the city. You can obtain the appropriate registration forms from the Income Tax Department, or the Building & Code Department.

21. What do I do with a 1099?

It is a requirement of the Income Tax Division that copies of 1099's (for other than interest or dividend payments) be submitted by both the payer and the recipient of a 1099.

22. Do I live in the City of Canton?

Go to the Stark County Auditor Property Search site and find your property record. In the City/Village field, it will state "Canton City" if you are within the city limits.