All residents of Middletown are required to file a tax return regardless of where they work. Residents, age 65 or over may be eligible for a senior account. Contact our office for details.
You are subject to tax on all income earned while working
in the City, regardless of where you live or where your
employer's main office is located. But, the City
holds the employer liable for withholding the tax.
Therefore, you do not have to file a Middletown tax return if
you work in Middletown but live elsewhere. Exceptions to this:
Earned income is subject to the Middletown local income tax but
unearned income is not. Common illustrations of earned income
include salaries, qualifying wages, commissions, bonuses, and other compensation
paid by employer(s) before any deductions. Unlike for your
Federal return, you may not deduct contributions to a retirement
plan (IRA, 401k, 403b, or 457b) on
your Middletown return. Also taxable are gambling and lottery
winnings reported on IRS form W2G or Form 5754. Earnings
are taxed in the year earned. Pension and retirement income is
not taxable when you are retired and receiving distributions.
The City does not tax unearned income. Examples of unearned
income are dividends, interest, capital gains (unless taxed
as ordinary income), alimony received, military pay, state unemployment
benefits, worker's compensation, social security, welfare assistance,
and pension or retirement income.
The only expenses that can be deducted from earned income as
an individual are those reported on the Federal Form 2106. These
pertain to unreimbursed business expense incurred as an employee.
You may be employed and also earn incidental income on the side.
If so, your incidental net income is subject to tax. It might
be in the form of fees for consulting or professional services,
honorariums from speaking engagements, royalties from publications,
small construction jobs, rental property, or other earned income.
You may combine the results of each business and report the total
on page one of the Form IR, Please also attach copies of
all applicable federal forms.
Net operating losses cannot be used to offset employee wages.
For unincorporated businesses, if you operated more than
one business, a net operating loss can be used to offset profits
from any other type of business you operate. The remainder
of the loss that could not be offset to other business profits
can be carried forward to be used as a future offset for up to
five years. Losses must be reported on Form IR, but are
not deducted in the computation of your individual taxable income.