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April 3, 2021

Geocoding

Geocoding is an essential part of payroll infrastructure as it helps determine exact tax withholding amounts for individual employees.

What is Geocoding?

Geocoding is the exact process of translating addresses into geographic coordinates, like latitude and longitude. Geocoding is especially important for payroll because an employees’ physical address is used to determine tax and withholding amounts. Geocoding is a subset of Geographic Information System (GIS) spatial analysis. Meanwhile, reverse geocoding is the process of transforming geographic coordinates into a physical address.

Geocoding is built from a reference dataset and geocoding algorithm, which has sub-operations and sub-components that allow for the transformation of physical, input data into numerical, spatial data. 

To determine relevant tax amounts, Puzzl stacks GIS map layers each with their own relevant tax code. Stacking these map layers across federal, state, city and local tax laws allows us to determine all tax codes pertaining to a single physical address. This practice makes geocoding essential to determining accurate tax calculations.

How does Geocoding work?

Geocoding starts with the input of data by the user - in our case, that usually consists of an employee’s home and work address.

Puzzl begins by standardizing the addresses in a process, aptly named, as address standardization. The address is modified to fit into the United States Postal Service (USPS) standards. This usually consists of simply fixing capitalization, spelling, and abbreviations to match USPS’ format. Puzzl will then match the address to the official USPS database for validation. 

Once the address is normalized and validated, Puzzl can begin geocoding. Not all addresses are treated the same when geocoding. Some can be geocoded down to the ‘rooftop level’ meaning the point is within the property boundaries. Others are less specific, only being centered to the community level. These geocode levels can be measured as the number of zip digits specified. Zip9 (or Zip+4) for the most specific and zip5 for the least.

Why is Geocoding important for payroll?

Geocoding is a pivotal part of Puzzl’s payroll engine because zip codes aren’t a reliable enough estimator of tax values. This is because each state, country, city, and locality in the United States can take a different approach towards taxing its residents. Because of the lack of a government engine, Puzzl built its own engine created on Geocoding technology. It allows us to bridge the nomenclature of street addresses into an exact measurement system of latitude and longitude.

When it comes to payroll, an employee’s work and home address are key for determining the accurate withholding settings. Companies with incorrect payroll calculations can be subject to penalties such as fines, audits, and producing W-2cs with inaccurate withholding.

Interesting Geocoding example

Real examples are simple ways to see the value of accurate geocoding. Here are two addresses on opposite sides of the street in Philipsburg, Pennsylvania:


In Red:

403 East Locust Street, Philipsburg, PA 16866

Rush Township, Centre County

Eit_nonres_percent: 0

Eit_res_percent: 0.5

eit_ lie: 0

Lst_dollars: 0

Lst_dollars: 0

In Purple:

414 East Locust Street, Philipsburg, PA 16866

Philipsburg, Centre County

Eit_nonres_percent: 1

Eit_res_percent: 0.5

eit_ lie: 0

Lst_dollars: 52

Lst_dollars: 12000


In this example, despite being simply across the street from each other the addresses are in separate townships and thus are subject to different tax codes. This is a live example of how geocoding is a more accurate method of determining accurate tax withholding than zip codes. Simply zip codes are too broad to use as tax determinantes.