As we are now in the home buying season in Northeast Ohio I want to bring to everyone's attention that the choice of where you live and where you work can have a significant impact on how much in taxes you pay.

Ohio is one of the very few locations in the nation where there are widespread local taxes. These local taxes are paid for both where you work and also where you live. Tax rates and tax credits can vary significantly from one location to another.

Ohio municipalities are allowed to set their own tax rates and rates can vary from as low as 0 percent to as high as 2.85 percent for just the employment tax portion. In addition to employment taxes, the municipalities also charge residence taxes that can also be at these same rates.

There are two primary tax collection agencies that cover Northeast Ohio for these local municipal taxes. These agencies are the Central Collection Agency and the Regional Income Tax Agency.

These agencies act on behalf of the cities to administer the collection and distribution of income taxes for various municipalities that they represent. In addition, some cities choose to manage and administer their own local income tax processing including cities such as Euclid, Eastlake and Wickliffe.

The municipal income tax is levied on all earned income including qualifying wages, self-employment income and partner's share of a partnership's income. In addition, rents and gambling winnings can be taxable in certain municipalities as well as income from grazing and oil and gas rights.

The tax ability of certain types of income varies from one locality to another which can make this a very complex area of tax preparation. However, for most people this tax is limited to the wages that they earn from working.

As a result, many retirees are completely exempt from these municipal income taxes.

For each municipality there is a different tax rate established through their individual ordinance approval process.

This tax rate can change from one year to the next, although these changes are generally infrequent in nature and tend to only be as an increase in the rate and rarely if ever are decreases.

Each municipality also establishes a tax credit and a credit limit. These two items effectively serve as the amount of reciprocity that a municipality will allow their residents to take when computing the residence tax component of the local income taxes.

So, for instance, Willoughby Hills has a 2.0 percent tax rate, but only allows for 1.5 percent reciprocity. So, in my case I work in Mentor so I have to pay the Mentor rate of 2.0 percent which is withheld from my paycheck from my employer.

In addition, I have to pay another 0.5 percent to Willoughby Hills when I file my RITA local income return.

Had I lived in a municipality with a full 2.0 percent reciprocity I would have saved myself this 0.5 percent of my earned income.

The difference in these rates and corresponding reciprocities can have an enormous impact on the overall income of a family.

For instance, if an individual would live and work in a township that is exempt from municipal income taxes such as Chester Township or Painesville Township they would pay no local income taxes.

However, if the same individual were to work in Euclid and live in Cleveland the total municipal income taxes paid would be 3.85 percent since Euclid would charge 2.85 percent on employment taxes and Cleveland has a rate of 2.0 percent with only 1.0 percent reciprocity.

For a family earning $50,000 per year this equates to an additional $1,925 in taxes that could have been reduced or eliminated through different choices in where they lived or work.

So, as you are house hunting and job hunting this summer please remember that the choice of location for both your employment and where you live can have a significant impact on how much you end up paying in municipal income taxes.