About a dozen states have a local income tax, meaning cities, counties, school districts, or transit districts can levy their own tax on wages or earnings on top of federal and state income tax. The broadest systems are in Pennsylvania, Ohio, Indiana, Maryland, Michigan, and Kentucky, where local taxes reach most or all residents. A smaller group of states — New York, Missouri, Colorado, Alabama, and Delaware — limits the power to a handful of named cities. Iowa, Oregon, and New Jersey allow only narrow, purpose-specific levies for schools, transit, or payroll. Whether you owe depends on where you live, where you work, or both.
States With Statewide Local Income Taxes
Pennsylvania
Pennsylvania’s local earned income tax touches virtually every municipality and school district in the state. Employers with worksites in Pennsylvania withhold the tax from every paycheck, and the rate withheld is the higher of the employee’s home rate or the workplace rate. Rates run from about 0.5% to nearly 4%, with Philadelphia at the top. Most smaller municipalities charge around 1%. Because municipalities and school districts both levy the tax, some workers face two local income taxes stacked together.
Ohio
Hundreds of Ohio cities and villages impose an income tax. Rates run from under 1% to 3% in a few smaller cities, with Cleveland, Columbus, and Toledo at 2.5%. A municipality can charge up to 1% without voter approval, and voters can authorize higher rates. Workers who live in one Ohio city and commute to another routinely file two local returns and need to understand what credit their home city offers for taxes paid at work.
Indiana
All 92 Indiana counties levy a local income tax, and the state Department of Revenue collects it through your regular state return. County rates run from roughly 1% to 3.4%. The rate that applies is based on where you live on January 1 of the tax year.
Maryland
Every Maryland county and Baltimore City imposes a local income tax calculated as a percentage of your state taxable income. For 2026, rates range from 2.25% in Worcester County to 3.30% in Dorchester and Kent Counties, with a couple of counties using graduated brackets. The tax is collected through the state return, so there is no separate local filing. If you live in Maryland, you pay a local income tax.
Michigan
Twenty-four Michigan cities levy an income tax under the City Income Tax Act of 1964. Residents pay higher rates than nonresidents who commute in. Detroit charges residents 2.4% and nonresidents 1.2%. Smaller cities generally charge 1% for residents and 0.5% for nonresidents. Cities outside this group of 24 have no local income tax, so your obligation turns entirely on whether you live or work inside one of the taxing cities.
Kentucky
Kentucky lets cities and counties impose occupational license taxes, and nearly every jurisdiction does. The tax is a percentage of wages or net business profits earned inside the jurisdiction. In the largest counties, the rate cannot exceed 1.25%. It applies to anyone working within the boundaries regardless of where they live, and employers usually withhold it.
States Where Only Named Cities Tax Income
New York
Local income tax in New York is confined to New York City and Yonkers. NYC residents pay a graduated city income tax reported on the state return, with rates starting at 3.078% and reaching 3.876% for single-filer taxable income above $50,000. Only residents of the five boroughs owe it; commuters do not.
Yonkers works differently. Residents pay a surcharge equal to 15% of their state income tax liability, and nonresidents who earn wages in Yonkers pay 0.25% on those wages.
Missouri
Only Kansas City and St. Louis levy a local income tax in Missouri. Both charge a flat 1% earnings tax on salaries and wages. You owe it if you live inside city limits or work there, so a suburban commuter into either city pays the same 1% as a resident. Employers withhold it, and the city collector enforces it.
Colorado
Several Colorado cities charge an occupational privilege tax, which is a flat monthly fee rather than a percentage of income. Denver charges $5.75 per month per employee and $4.00 per month per employer. Greenwood Village charges $2 per month for the employee and $2 for the employer for anyone earning $250 or more in a calendar month. Aurora repealed its occupational privilege tax effective January 1, 2025.
Alabama
Alabama cities can levy occupational taxes on workers within their boundaries. Birmingham charges 1% and Gadsden charges 2%, both on gross wages. Because the tax attaches to working in the city, commuters from surrounding areas owe it too. Employers withhold it at the source.
Delaware
Delaware’s only local income tax is Wilmington’s. Both residents and nonresidents who work in the city pay 1.25% on wages and net business profits. New Castle County collects the tax on the city’s behalf. If you neither live nor work in Wilmington, Delaware has no local income tax for you.
States With Narrow, Purpose-Specific Local Taxes
Iowa school district surtax
Iowa’s local income tax is a school district surtax that funds education. It is calculated as a percentage of your state income tax liability and reported on your state return. Not every school district imposes one, and rates vary by district. Because it stacks on the state tax rather than gross income, the real dollar impact is smaller than the surtax percentage suggests.
Oregon transit district taxes
Oregon uses transit district payroll taxes in two regions. The TriMet tax covers the Portland metro area (Clackamas, Multnomah, and Washington counties) and the Lane Transit District tax covers the Eugene-Springfield area. For 2026, the TriMet rate is 0.8237% and the Lane Transit rate is 0.80% on wages for services performed in the district. These are employer-paid, not deducted from your paycheck, though self-employed workers in the districts owe the tax on net earnings.
New Jersey’s Newark payroll tax
New Jersey’s only local earnings-side tax is Newark’s payroll tax, which charges employers 1% of total payroll for work performed in the city. It is paid by the employer and does not come out of your paycheck. No other New Jersey municipality currently imposes one.
Do You Owe Based On Where You Live Or Where You Work?
The answer varies by state, and it matters most in the statewide systems and the named-city states.
Indiana and Maryland tax you based on residence. There is no separate workplace tax and no double claim to sort out.
Michigan taxes both, but at different rates: residents of the 24 taxing cities pay the full rate, and nonresidents who work there pay roughly half.
Kentucky occupational taxes, Alabama occupational taxes, and Wilmington’s earned income tax follow the workplace: if you work inside the jurisdiction, you owe, no matter where you live.
Missouri’s earnings taxes in Kansas City and St. Louis reach both residents and workers. New York City taxes residents only. Yonkers taxes both, at very different rates.
Pennsylvania and Ohio are the tangled ones. Both your home and workplace jurisdictions may have a claim, and the resolution runs through withholding rules and resident credits rather than a clean either/or.
Remote work
Remote work has scrambled these rules. The general default is that your local tax follows where you physically perform the work, not where the employer’s office sits. Commute into a taxing city and you owe; work from a home in a jurisdiction with no local tax and the city generally loses its claim.
The exception is the “convenience of the employer” test. Under that rule, if your remote arrangement exists for your convenience rather than the employer’s business necessity, the city where the office sits can still tax you as if you had shown up. Philadelphia applies this rule. The line between convenience and necessity is not always obvious, and it catches remote workers who assume working from home ends their city tax bill.
If you split time between a home office and a workplace in different taxing jurisdictions, some cities require you to allocate income by the number of days worked in each place. Keep a daily log; it is often the only evidence you will have if an auditor asks.
Credits When Two Places Both Tax You
When you live in one taxing jurisdiction and work in another, both may have a claim. Most systems handle this with a credit: your home jurisdiction reduces your local bill by what you already paid the workplace jurisdiction. Ohio resident cities typically give partial or full credit for taxes paid to the workplace city.
The credit does not always make you whole. If your home city charges 2.5% and your workplace city charges 1%, you still owe 1.5% at home after the credit. The credit usually runs one direction — the home city gives it, not the workplace. Some jurisdictions cap the credit below the workplace rate, so a few workers effectively pay more than either single rate on its own.
In Indiana and Maryland, where local tax rides on the state return and is based on residence, the double-taxation problem does not really arise. Pennsylvania and Ohio, with hundreds of overlapping jurisdictions each running their own systems, are where it bites hardest.
Filing And Withholding
For W-2 employees, local income tax usually comes out of your paycheck automatically. Your employer reports it in Boxes 18 through 20 of your W-2. In Indiana and Maryland, the local tax is folded into your state return with no extra form. In Pennsylvania and Ohio, you typically file a separate annual reconciliation return with your local tax collector or regional agency even if withholding was correct all year.
Self-employed workers pay these themselves, usually quarterly. Ohio municipalities require self-employed individuals to file a local return reporting net profits. Pennsylvania subjects net profits from a business, profession, or farm to the local earned income tax, reported to the appropriate tax collection district.
Penalties for late filing and underpayment vary but follow a familiar pattern: monthly interest on unpaid balances plus flat penalties. Many local collectors have wage garnishment and bank levies available. Confirm your obligations when you start a new job or move, rather than finding out during an audit.