At least 14 states let cities, counties, school districts, or transit authorities charge a local income tax on top of federal and state taxes. The heaviest systems run in Ohio, Pennsylvania, Indiana, and Maryland, where hundreds or even thousands of jurisdictions set their own rates. Elsewhere, local income taxes exist only in a handful of specific cities. Whether you owe one depends on where you live, where you work, and sometimes both.
States Where Local Income Tax Is Broad
Four states apply local income taxes across most or all of their territory rather than confining them to select cities.
Indiana
Every one of Indiana’s 92 counties levies a local income tax. Indiana Code Title 6, Article 3.6 authorizes the tax, and all counties have adopted it.1Indiana General Assembly. 2025 Indiana Code Title 6, Article 3.6 – Local Income Taxes Rates run from about 1.4% to nearly 3% of adjusted gross income, with each county setting a single flat rate for all its residents. Collection happens through the state income tax return, so there is no separate county filing.
Maryland
Maryland requires all 23 counties and the City of Baltimore to impose a county income tax on residents. Under Maryland Tax-General ยง 10-106, each county sets its rate between a 2.25% floor and a 3.30% ceiling of Maryland taxable income.2Maryland General Assembly. Maryland Code Tax-General 10-106 – County Income Tax Rate For 2026, actual rates span the entire range: Worcester County sits at the 2.25% floor while Dorchester and Kent counties sit at the 3.30% ceiling.3Comptroller of Maryland. 2026 Maryland State and Local Income Tax Withholding Information The Comptroller’s office collects the county tax alongside the state return. Nonresidents who earn wages in a Maryland county pay a separate nonresident tax.4New York Codes, Rules and Regulations. Maryland Code Tax-General 10-103 – County Income Tax
Ohio
Ohio has the most fragmented local income tax landscape in the country. More than 600 municipalities levy their own income taxes under Ohio Revised Code Chapter 718, and many school districts impose additional taxes on top.5Justia. Ohio Revised Code Title 7 Chapter 718 – Municipal Income Taxes Rates and rules differ from city to city, so someone who lives in one municipality and works in another can face two separate local tax obligations. Many Ohio taxpayers file through the Regional Income Tax Agency (RITA) or CCA, which are centralized collectors that handle returns for groups of municipalities.
Pennsylvania
Pennsylvania authorizes thousands of municipalities and school districts to levy a local earned income tax. Act 32, passed in 2008, streamlined collection by requiring employers to withhold local taxes based on each worker’s home and work locations.6PA Department of Community & Economic Development. Act 32 – Local Income Tax – PSD Codes and EIT Rates Most local earned income tax rates fall between 1% and 2%, split between the municipality and the school district. Philadelphia is the outlier: its wage tax on residents runs near 3.8%, one of the highest local rates in the nation.7City of Philadelphia. Earnings Tax (Employees) Many Pennsylvania jurisdictions also charge a separate Local Services Tax, typically a $52 annual flat fee.
States Where Only Certain Cities Tax Income
Several states limit local income taxation to a defined list of cities or metropolitan areas.
Alabama
Dozens of Alabama cities charge occupational taxes on wages earned within their limits. Rates run from 0.5% to 2%, with most cities at 1%. Birmingham charges 1%, Gadsden 2%. Employers withhold the tax from gross wages, with no deductions or credits available to the worker.
Delaware
Wilmington is Delaware’s main city with a local wage tax. It applies at 1.25% to gross earned income of both city residents and nonresidents who work within the city.
Kentucky
Kentucky cities and counties impose occupational license taxes on wages, and rates in major cities can top 2%. Louisville/Jefferson County charges 2.2% on residents and 1.45% on nonresidents.8LouisvilleKy.gov. Form OL-3 (Occupational License Return) Frankfort’s rate sits just under 2%.9Frankfort, KY. Licensing Fees The tax applies to compensation for services performed within the jurisdiction, and employers handle withholding.
Michigan
Twenty-four Michigan cities levy a local income tax.10State of Michigan: Treasury. Which Cities Impose an Income Tax? The standard structure is 1% for residents and 0.5% for nonresidents. Two large cities break that pattern. Detroit charges 2.4% for residents and 1.2% for nonresidents; Grand Rapids charges 1.5% and 0.75%.11Michigan City Income Tax Form. Employee’s Withholding Certificate for Michigan City Income Tax
Missouri
Only Kansas City and St. Louis impose local earnings taxes in Missouri. Both charge a flat 1% on wages. Kansas City residents owe the tax on all earnings regardless of where the work happens; nonresidents owe it on income earned within city limits.12City of Kansas City. Tax FAQs St. Louis works the same way,13City of St. Louis. Earnings Tax Department and St. Louis employers also pay a separate 0.5% payroll expense tax on top of the employee withholding.14City of St. Louis. Employer Withholding and Payroll Expense Tax Information These earnings taxes require separate filings with each city rather than passing through the state return.
New York
New York City imposes the highest local income tax rates in the country. The graduated structure tops out at 3.876% for most filers, and even the lowest bracket starts at 3.078%, so every NYC resident pays a meaningful local tax on top of state rates. Yonkers levies an income tax surcharge on its residents.15Justia. 2025 New York Laws YTS – Yonkers Income Tax Surcharge No other city in New York State imposes a local income tax.
States With Specialized Local Structures
A few states use local revenue mechanisms that don’t look like a traditional income tax but still reach earnings or investment returns.
Iowa
Iowa school districts can levy a surtax calculated as a percentage of your state income tax liability. Voters in the district or a school board resolution must approve it, and it applies to all residents of the district on the last day of the tax year.16Cornell Law School. Iowa Admin Code r. 701-304.1 – School District Surtax Because the surtax is a percentage of state tax rather than income directly, the effective rate varies with each taxpayer’s state liability. The Iowa Department of Management sets each participating district’s rate annually.
Kansas
Kansas cities and counties can impose a local intangibles tax on income from money, notes, and other debt instruments, targeting interest and similar returns rather than wages.17Kansas State Legislature. Kansas Statutes 12-1,104 – Local Option Intangibles Tax Returns are filed with the county clerk, and the county treasurer collects. Most wage earners never encounter this tax, but retirees and investors with significant interest income can.
Oregon
Oregon’s local income-related taxes fund public transit. The TriMet and Lane Transit districts impose payroll taxes on employers based on gross wages paid for work performed within each district.18Oregon Department of Revenue. Lane County Transit District Payroll Tax The Lane Transit rate for 2026 is 0.80% of gross payroll. These are technically employer-paid taxes, but they affect the cost of employment in those areas. Oregon also imposes a statewide transit tax of 0.1% directly on employee wages, withheld from paychecks regardless of where in the state the work is performed.19Oregon Department of Revenue. Statewide Transit Tax
West Virginia
Several West Virginia cities charge flat weekly service fees on people who work within city limits, authorized under state code as fees for essential services like police, fire, and street maintenance. Morgantown charges $3.00 per week,20Morgantown, WV. Safe Streets and Safe Community Fee Parkersburg $2.50 per week.21Parkersburg, WV. Understanding City Fees The amounts are modest compared with percentage-based taxes elsewhere, but they are mandatory and withheld by employers.
If You Commute or Work Remotely
Local income taxes get complicated when you live in one jurisdiction and work in another. Most cities use one of two triggers: where you live or where you physically perform work. Many cities tax nonresidents who work within their borders, often at a lower rate than residents. Michigan cities, for example, charge nonresidents half the resident rate. Residents typically owe their home jurisdiction’s tax on all income even when they commute elsewhere.
To prevent double taxation, most systems offer a credit. If your workplace city withholds local tax from your paycheck, your home city usually lets you subtract that amount from what you owe there. The credit is generally capped at the lower of the two rates, so a home city at 2% and a work city at 1% still leaves you owing 1% at home. Kansas City illustrates the residency side: residents owe 1% on all earnings regardless of where the work happens and can claim a credit for local taxes paid elsewhere.12City of Kansas City. Tax FAQs
Remote work adds a second layer. The traditional rule is straightforward: you owe local tax where you sit while doing the work. A handful of states, most notably New York, apply the “convenience of the employer” rule. If your employer is based in New York and you work from home in another state for your own convenience rather than because the job requires it, New York still treats those wages as New York-sourced income.22State of NJ – Department of the Treasury. Convenience of the Employer Sourcing Rule FAQ Delaware and Nebraska follow similar logic. Most other local jurisdictions use a pure physical-presence test: if you did not work in the city, you do not owe the city.
For workers splitting time between a home office and a taxing city, the math gets granular. Many municipalities require you to allocate income based on the number of days actually worked within their borders. A daily log is often the only way to defend your allocation if a local tax authority challenges it.
If You Are Self-Employed
Local income taxes reach beyond W-2 employees. Self-employed people and unincorporated businesses face net profits taxes in many jurisdictions. Pennsylvania’s local earned income tax applies equally to employees and to self-employed individuals on net profits from business activity within a taxing jurisdiction. New York City goes further with a dedicated Unincorporated Business Tax set at 4% of taxable income allocated to the city.23NYC.gov. Business Unincorporated Business Tax (UBT)
No employer handles withholding for you. You are responsible for estimating your local liability, making quarterly payments where required, and filing the correct return. Missing these obligations brings penalty and interest charges on top of the tax. Freelancers working in multiple cities may need to track which income was earned in which jurisdiction and file separate returns in each.
How Local Income Tax Affects Your Federal Return
Local income tax you pay is deductible on your federal return as part of the state and local tax (SALT) deduction, but only if you itemize. For 2026, the SALT deduction is capped at $40,400 for most filers and $20,200 for married filing separately. The cap covers the combined total of state income taxes, local income taxes, and property taxes. In a high-tax jurisdiction like New York City or Philadelphia, the cap can leave a substantial portion of your combined state and local tax burden generating no federal benefit.
The cap phases down for taxpayers with modified adjusted gross income above $505,000 in 2026, reaching a floor of $10,000, which was the limit under the original 2018 rules. Taxpayers who take the standard deduction get no federal benefit from local income taxes at all. If you are comparing two job offers in different cities, the after-SALT-cap cost of local income taxes is worth building into the comparison, because the federal deduction may not offset as much of the local tax as you expect.