Frequently Asked Questions

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.

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. For additional information view the

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.