Do Cities Have Income Tax? Rates, Commuters, and Remote Work

Yes, some cities have an income tax. About 15 states plus the District of Columbia allow local jurisdictions to levy one, and roughly 7,000 cities, counties, and school districts across the country do. Rates typically run from under 0.5% to around 3%, and depending on where you live or work, the tax may hit residents only, commuters only, or both. Most of the United States has no local income tax at all, but in the states that permit it, the obligation is easy to overlook until a bill arrives.

Which States Let Cities Tax Income

Local income taxes are heavily concentrated in a handful of states. Pennsylvania and Ohio run the largest systems. More than 500 Ohio municipalities levy their own income tax under a statewide framework in Chapter 718 of the Ohio Revised Code.1Justia. Ohio Revised Code Title 7 Chapter 718 – Municipal Income Taxes Pennsylvania’s Local Tax Enabling Act, known as Act 511, lets both municipalities and school districts tax earned income, producing hundreds of separate rates.2Pennsylvania Legislature. Act of Dec 31, 1965, No 511 – Local Tax Enabling Act

Other states with meaningful local income taxes include Alabama, Indiana, Iowa, Kentucky, Maryland, Michigan, Missouri, New York, and West Virginia. Kentucky alone has more than 400 local tax jurisdictions collecting occupational license taxes on wages and net profits.3Kentucky Legislative Research Commission. Kentucky Code 68.180 – Occupational License Tax in Counties Containing 300,000 Population Nine states, including Arizona, California, Texas, and North Carolina, explicitly prohibit local governments from taxing income. The remaining states simply haven’t authorized it.

Cities cannot decide to tax income on their own. The power has to come from the state legislature or state constitution, and the enabling law typically sets maximum rates, defines what income can be taxed, and controls how collection works.4Internal Revenue Service. Governmental Information Letter

What Rates Look Like

Rates vary widely by state and by city:

Pennsylvania’s individual municipal rates tend to be lower, but the combined municipal and school district rate in a given area can add up. Two neighboring towns may charge noticeably different amounts.

Who Actually Pays: Residents and Commuters

Local income taxes usually attach based on two connections: where you live and where you work. If you live inside a city that levies the tax, you generally owe it on all your earned income no matter where the job is. If you live outside the city but commute in, you owe a workplace tax based on where you physically perform the work. Many cities tax both groups.

Not every city works this way. New York City taxes only residents and does not impose its personal income tax on commuters from New Jersey or Connecticut. City employees who live outside the five boroughs, however, must file a form calculating a liability as if they were residents.10NYC.gov. Personal Income Tax and Non-Resident Employees St. Louis, by contrast, collects its 1% earnings tax from both residents and anyone performing work within the city.8Collector of Revenue. Individual Earnings Tax Information

Physical presence is what typically creates the obligation on the workplace side. The location where you actually do the work, not where your employer is headquartered, determines which city can tax the earnings.

What Kinds of Income Are Taxed

Most local income taxes target earned income only: wages, salaries, commissions, bonuses, and net profits from self-employment. That’s a much narrower slice than what the federal government taxes.

Interest from U.S. Treasury securities is exempt from all state and local income taxes by federal law.11Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses Beyond that, most local income taxes do not reach dividends, capital gains, interest, rental income, or Social Security benefits. Ohio’s municipal income tax, Pennsylvania’s local earned income tax, and Kentucky’s occupational taxes all follow this pattern.

There are exceptions worth knowing about. Some Ohio school districts tax a broader base built on modified adjusted gross income, which can sweep in pensions and retirement distributions.12Ohio Department of Taxation. School District Income Tax A retiree with no wages can still owe local tax in those districts. The label “income tax” can mean very different things depending on the tax base the locality picked, so check your specific jurisdiction.

School District Income Taxes

In some states, school districts levy their own income tax on top of any city tax. Ohio is the leading example: as of January 2026, 210 Ohio school districts levy an income tax, every one approved by voters.12Ohio Department of Taxation. School District Income Tax Unlike municipal taxes, school district taxes apply only to residents of the district.

Ohio districts choose between two tax bases. Some tax only earned income, which exempts retirees. Others tax modified adjusted gross income, which pulls in retirement distributions. In Pennsylvania, school districts can also levy earned income taxes under Act 511 and often share revenue with the overlapping municipality.13Commonwealth of Pennsylvania. Act 511 Taxes for Pennsylvania School Districts Glossary of Terms

Self-Employed Workers

If you’re self-employed and work in a city with a local income tax, no employer is withholding for you. Most jurisdictions require self-employed individuals to file a net profits return covering business income earned inside the city, separate from your federal Schedule C and your state return. Many also require quarterly estimated payments if you expect to owe more than a minimal amount.

Freelancers, gig workers, and independent contractors are the people most likely to fall through the cracks, because nothing flags the obligation on their paychecks. If you do any work inside a city that taxes income, check whether you have a filing requirement.

Remote Work and the Convenience Rule

Remote work has scrambled the traditional rule that you owe tax where you physically perform the work. Some states apply a “convenience of the employer” rule: if you work from home for your own convenience rather than because your employer requires it, your wages are still sourced to the employer’s location. New York applies this rule, and New Jersey has enacted a reciprocal version that kicks in when a nonresident’s home state uses a similar test, currently affecting employees in states like New York and Delaware.14New Jersey Division of Taxation. Convenience of the Employer Sourcing Rule FAQ

At the local level, the picture is messier. During the pandemic, Ohio passed emergency legislation treating days worked from home as days worked at the employee’s principal place of work, letting the office city keep its revenue. St. Louis took a similar position on nonresident telecommuters. Both approaches have faced legal challenges, and the rules keep shifting. If you work remotely for an employer in another city or state, confirm which jurisdiction claims your income before filing.

How Local Tax Is Withheld and Filed

For traditional employees, collection usually starts with payroll withholding. Your employer deducts the local tax from each paycheck and sends it to the appropriate city or collection agency. The amounts appear on your W-2 in boxes 18 through 20, showing your local wages, the tax withheld, and the name of the locality. If you worked in more than one local taxing jurisdiction, expect multiple W-2 entries.

Many jurisdictions also require a separate local tax return, independent of your federal and state filings. The deadline typically aligns with April 15, but not always, so verify your local due date. Penalties and interest for late filing or payment depend entirely on the jurisdiction: some impose flat fees, others assess a percentage of the tax owed, and interest accrues on unpaid balances.

Many areas outsource collection. Ohio’s Regional Income Tax Agency handles filings for 182 jurisdictions.15Regional Income Tax Agency. Home Pennsylvania uses designated collectors for each tax collection district.16PA Department of Community and Economic Development. Local Income Tax Collector Your W-2 locality name or your employer’s payroll department can point you to the right agency.

Credits When Two Cities Tax You

When you live in one taxing city and work in another, both could theoretically tax the same wages. Most jurisdictions handle this with a credit: the workplace city collects first, and your home city gives you credit for what you already paid. You end up paying the higher of the two rates rather than both stacked together.

The credit doesn’t always zero out the second bill. If your workplace city charges 1% but your home city charges 2%, you still owe the remaining 1% to your home city. These credits are rarely automatic. You’ll usually need to document what you paid to the other jurisdiction when you file, so keep your W-2s and payment receipts. If you moved mid-year between two taxing jurisdictions, each city generally taxes only the income you earned during the period you lived or worked there, and you’ll likely file part-year returns with both.