Which of the following is NOT a local tax that payroll might withhold?

• A. Federal income tax
• B. City or municipal income taxes
• C. Local earned income taxes
• D. School district taxes

Answer: (A)

Local payroll withholdings depend on the taxes imposed by local authorities, such as cities or school districts. What’s being tested is which tax is not tied to a local jurisdiction. Federal income tax is levied by the federal government and is withheld by employers nationwide as part of the federal tax system, not by any local authority. The other options—city or municipal income taxes, local earned income taxes, and school district taxes—are all examples of taxes that can be imposed and withheld by local entities in certain areas. So the correct distinction is that federal income tax is not a local tax.