Your employer may be pocketing your state income tax
Sixteen states now allow corporations to withhold state income taxes from employees and keep the money as an incentive for a business to locate to or remain in a state. That means that, in effect, employees pay personal income tax to their company rather than their state government.
Falls Church, Va.
State tax incentives for businesses are on the rise. Proponents say they help keep companies in a state and create jobs, making them important to statewide economic development. What they often don’t show is who pays for these costly incentives. Increasingly, employees foot the bill – often without their knowledge.Skip to next paragraph
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Most employees assume that states use their state income taxes to improve school systems, pave roads, or hire more police. That is, after all, part of the social contract we have with our government. We pay taxes and get public services.
But more and more of those tax dollars aren’t funding services; they aren’t even getting to the state capital. Sixteen states now allow corporations to withhold state income taxes from employees and keep the money as an incentive to locate to or remain in a state. That means that, in effect, employees pay personal income tax to their company rather than their state government. (The 16 states are: Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Kentucky, Maine, Mississippi, Missouri, New Jersey, New Mexico, North Carolina, Ohio, South Carolina, and Utah.)
A recent report from Good Jobs First entitled, “Paying Taxes to the Boss,” sheds light on how widespread this practice has grown. An estimated 2,700 companies now take advantage of this welfare system, fueling an economic war between states that costs employees an estimated $700 million a year in diverted tax income, the report concludes. Those who profit include corporate giants like Sears, Goldman Sachs, and General Electric.