Lake County, Indiana, has adopted a county income tax that takes effect October 1, 2013. Businesses and organizations with employees who live or work in Lake County should be aware of the withholding requirements.

Indiana employers should withhold at a rate of 1.5% on residents of Lake County. If a Lake County resident works in another Indiana county, the employer should stop withholding for the other county and begin withholding for Lake County in October at the 1.5% rate.

If an employee works in Lake County but resides in another Indiana county, the employer should withhold at the other county’s rate. If an employee works in Lake County but resides in another state, the employer should withhold Lake County tax at the nonresident rate of .25%.

Businesses and organizations from other states may have employees who live in Lake County but work in that other state. For example, an Illinois employer could have a worker who resides in Lake County but works in Illinois. Generally, the Illinois employer is not required to withhold the county tax, but may do so voluntarily as a convenience for its employee. Tax would be withheld at the 1.5% rate.

Payers of pension benefits are not required to withhold Indiana income tax or county income tax unless the retiree makes a written request.

It is important to note that the county of residence and the county of employment are determined as of January 1 each year. The county where an employee lives on January 1 is considered the resident county for the entire year, even if the employee relocates. Likewise, the county of employment on January 1 is considered the county of employment for the entire year.

Paychecks issued on or after October 1 will be subject to the withholding requirements regardless of when the compensation was earned. For example, if the compensation was earned in September but paid in October, the county tax should be withheld. It’s the date paid not the date earned that controls.

Employers using software to prepare payroll checks will need to make sure each employee is set up for the proper county withholding.

For more information go to the Indiana Department of Revenue website at www.in.gov/dor/ and see the notice titled “Lake County LOIT.”

If you have any questions or need further assistance, contact Frank Lowry or Jody Schneider in the Schererville office at 219-836-1065 or email them at flowry@legacycpas.com or jschneider@legacycpas.com.