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A commuter tax is a tax on income earned within a taxing jurisdiction by people who live elsewhere. These taxes are usually calculated at a rate lower than that charged to residents, but sometimes only marginally so, and are most often charged by cities on workers who commute from neighboring areas. In regions where some jurisdictions charge such a tax, neighboring jurisdictions, if they impose the same type of tax, often give their taxpayers a credit for commuter taxes paid.
In the United States, the mechanism for collecting commuter taxes is much the same as for other income taxes, with employers withholding the proper amount due and the taxpayers reconciling amounts earned and paid when they file their annual income tax returns. This can be a complex process for taxpayers who travel often, because income earned outside the taxing jurisdiction, such as when on a business trip, is excluded from a commuter tax. Another potential complication for taxpayers is a two-tiered approach to taxing commuters, with out-of-state commuters charged at a higher rate than those from other locations in the same state.
In many metropolitan areas, the core cities provide more employment opportunities than the rest of the region. Commuters make frequent use of their taxpayer-funded or subsidized services, such as mass transportation, streets, and sidewalks, police and fire protection and, when necessary, public hospitals. Proponents of the tax say that commuters, who in some cities outnumber the residents, should pay their fair share toward all public services.
Opponents of taxing commuters point out that they already contribute a great deal to the local economy where they work, both in terms of their direct purchases and the sales taxes paid on them. In addition, thousands of private jobs in each metropolitan area exist just to serve the needs of commuters, jobs which themselves generate tax revenue. The cities also impose significant tax burdens on the companies that employ commuters, which may cover the cost of city services. If commuters were actually such a drain on local economies, insist the opponents, cities wouldn't try to attract new jobs.
An interesting feature of the commuter tax is that it often works both ways — that is, since there are some people who live in the city and work in the suburbs, those outlying areas establish their own commuter taxes. In many regions, this has led to reciprocal taxing agreements that provide for credit to taxpayers for commuter taxes paid. The effect of this is that commuters pay the commuter tax, and then receive a credit from their own taxing jurisdictions for the actual dollar amount of that tax. Under this system, commuters' overall tax liability is not increased unless their home county or city does not impose income tax at all.