Roughly a dozen states let cities, counties, school districts, or transit authorities tax wages on top of federal and state income tax, and the states with local payroll taxes fall into a few distinct patterns: universal county-level taxes, city-specific occupational or earnings taxes, employer-only payroll levies for transit, and school district surtaxes. Rates run from a few dollars a month in flat-fee cities to more than 3% of gross wages in places like Philadelphia and Detroit. Most states impose nothing at the local level, so whether you owe anything depends entirely on where you live and where you work.
States Where a Local Income Tax Applies Everywhere
Four states have local income taxes that reach nearly every worker within their borders. If you earn wages in one of them, a local deduction is essentially guaranteed.
Maryland
Every Maryland county and the City of Baltimore must set a local income tax rate between 2.25% and 3.30% of Maryland taxable income under Tax-General Article § 10-106.1Maryland General Assembly. Maryland Tax-General Code 10-106 – County Income Tax Rate The state collects the money and remits it to the counties, so employees see one withholding line rather than a separate county filing. Most counties cluster between 2.65% and 3.20%.2Comptroller of Maryland. Maryland Withholding Tax Facts 2025
Indiana
All 92 Indiana counties levy a local income tax under IC 6-3.6.3Indiana Department of Revenue. Income Tax Information Bulletin #32 Counties can set an expenditure rate up to 2.5% (2.75% for Marion County, home of Indianapolis) and an additional rate up to 1.25% for property tax relief. Combined rates in some counties approach 3.75%, though most sit between 1% and 2.5%. The state tax agency handles collection.
Ohio
More than 600 Ohio cities and villages impose income taxes under Ohio Revised Code Chapter 718, generally between 1% and 2.5% of gross wages.4Ohio Legislative Service Commission. Ohio Revised Code Chapter 718 – Municipal Income Taxes Any rate above 1% requires voter approval. Employers must withhold for each municipality where their employees physically work. Two centralized agencies simplify the paperwork: the Central Collection Agency (CCA) administers taxes for Cleveland and surrounding communities, and the Regional Income Tax Agency (RITA) covers hundreds of other municipalities.5CCA – Division of Taxation. CCA Municipal Income Tax
Pennsylvania
Nearly every Pennsylvania municipality and school district can collect an Earned Income Tax and a Local Services Tax under Act 511. The standard Earned Income Tax rate is 1%, split between the municipality and school district where you live. The Local Services Tax is a flat $52 per year, deducted in small increments from each paycheck.6Pennsylvania General Assembly. Pennsylvania 1965 Laws Act 511
Philadelphia is the outlier. The city runs its own wage tax at 3.74% for residents and 3.43% for non-residents who work within city limits.7City of Philadelphia. Wage Tax (Employers) That sits on top of the state’s 3.07% flat income tax. Outside Philadelphia, employers remit local Earned Income Tax through certified regional tax officers rather than dealing with each municipality directly.8Pennsylvania DCED. Act 32 Certified Tax Officers
States Where Only Certain Cities Tax Wages
In these states, the tax reaches you only if you live or work in a specific city. Rates and structures vary widely.
Alabama
About two dozen Alabama cities impose occupational taxes on anyone who works within their limits, including Birmingham, Gadsden, Opelika, and Tuskegee. Rates run from 0.5% to 2% of gross wages, with most cities at 1%. The tax applies regardless of where you live; if your job site is inside the taxing city, you owe it.
Colorado
Denver’s Occupational Privilege Tax charges employees $5.75 per month and employers $4.00 per month for each employee earning at least $500 in a month.9City and County of Denver. Tax Guide Topic 61 – Occupational Privilege Taxes Greenwood Village maintains a similar flat-fee tax. Aurora repealed its OPT effective January 1, 2025.10City of Aurora. Occupational Privilege Tax Because these are flat monthly fees, the impact stays modest, roughly $70 per year for an employee in Denver.
Delaware
Wilmington is the only Delaware city with a local income tax. It charges 1.25% on both residents and non-residents who work within city limits.11City of Wilmington Budget Office. City of Wilmington Tax Rates Fiscal Year 2025 The rate is set by the Delaware General Assembly rather than by the city.
Kentucky
Kentucky cities and counties levy occupational license taxes under different statutory authorities depending on their size. Counties with populations above 300,000, essentially Jefferson County, can levy up to 1.25% under KRS 68.180.12Kentucky Legislative Research Commission. Kentucky Code 68.180 – Occupational License Tax in Counties Containing 300,000 Population Cities operate under separate authority and often set higher rates. Louisville Metro charges about 2.2%, and Lexington collects roughly 2.25%.
Michigan
Michigan allows cities to levy income taxes under Act 284, and about two dozen do. Detroit charges residents 2.4% and non-residents 1.2% on income earned within city limits.13Michigan Legislature. Michigan City Income Tax Act 284 – Section 141.503 Most other participating cities cap at 1% for residents and 0.5% for non-residents, including Grand Rapids, Lansing, and Saginaw.14Michigan Legislature. Michigan Compiled Laws Act 284 – City Income Tax Act If you work in a taxing city but live outside it, you owe the non-resident rate.
Missouri
Kansas City and St. Louis each levy a 1% earnings tax on people who work or live within their city limits.15City of Kansas City. Have You Paid Your KCMO Earnings Tax (E-Tax)? Non-residents have the tax withheld from their paychecks. St. Louis accepted remote-work refund claims for days worked outside city limits for tax years 2020 through 2023, though that window has largely closed.
West Virginia
A handful of West Virginia cities charge flat weekly service fees rather than percentage-based taxes. Charleston imposes a $3.00 per week City Service Fee on anyone who works within its borders, whether full-time, part-time, or self-employed.16City of Charleston, WV. City Service Fee Overview Huntington has a similar municipal fee. Employers withhold and remit quarterly.
Employer-Only Payroll and Transit Taxes
Some local taxes never touch the employee’s paycheck. They land on the employer as a cost of doing business in a particular area.
New York
The Metropolitan Commuter Transportation Mobility Tax funds the MTA and applies to employers in the New York City area. It kicks in only when covered payroll exceeds $312,500 per quarter. Within Zone 1 (New York City and parts of the surrounding counties), rates range from 0.055% on the smallest taxable payrolls to 0.895% for large employers.17Tax.NY.gov. Metropolitan Commuter Transportation Mobility Tax (MCTMT) Zone 2, covering outer suburban counties, tops out at 0.635%.
New York City also imposes a personal income tax on residents that reaches roughly 3.9% at the top bracket. Non-residents who commute in for work do not owe this tax, though their employer may still owe the MCTMT.18Tax.NY.gov. Filing Information for New York State Nonresidents
Oregon
Oregon funds transit through two employer-paid payroll taxes. TriMet Transit District employers pay 0.8237% of gross wages for services performed in the Portland metro area.19Oregon Department of Revenue. TriMet Transit Payroll Tax The Lane Transit District, covering the Eugene-Springfield area, charges employers 0.80% of covered payroll.20Oregon Department of Revenue. 2026 Oregon Combined Payroll Tax Report Neither is deducted from employee wages, and both districts hold 2026 rates level with 2025.
New Jersey
Newark and Jersey City each impose a 1% payroll tax on employers whose quarterly gross payroll exceeds $2,500.21City of Jersey City. Payroll Tax FAQ22Newark, NJ. Payroll Tax Booklet 2025 Employees see no line-item deduction, but the cost still shapes what it takes to operate in either city.
School District Income Surtaxes
In two states, school districts have their own taxing power on top of any municipal levy.
Iowa
Iowa school districts can levy an income surtax calculated as a percentage of a resident’s state tax liability rather than as a flat rate on income. Under Iowa Code § 298.14, the cumulative surtax across all applicable levies cannot exceed 20% of the state tax amount.23Iowa Legislature. Iowa Code 298.14 – School District Income Surtaxes Most districts set the surtax well below the ceiling.
Ohio
Ohio school districts can also levy income taxes, entirely separate from municipal ones. Under ORC § 5748.02, a school board proposes an income tax to voters after receiving a rate estimate from the state tax commissioner.24Ohio Legislative Service Commission. Ohio Revised Code 5748.02 – School District Income Tax Proposal and Election Districts pick either a “traditional” base that includes most types of income or an “earned income only” base. Rates come in 0.25% increments and commonly range from 0.50% to 2%. For workers in an Ohio city that also levies its own tax, the school district tax stacks on top with no credit between the two.
Credits When You Live and Work in Different Places
If you live in one taxing jurisdiction and work in another, you can end up owing local taxes to both. Most states resolve this through a credit system: the jurisdiction where you earn the income collects first, and your home jurisdiction credits you for what you already paid. The U.S. Supreme Court endorsed this approach in Comptroller of the Treasury v. Wynne.
A Pennsylvania resident who works in Philadelphia, for example, doesn’t pay the full 1% Earned Income Tax to their home municipality on top of Philadelphia’s wage tax. The credit for Philadelphia withholding usually wipes out or substantially reduces the home municipality’s claim. Ohio works the same way between work-city and home-city taxes.
The credit doesn’t always make you whole. If your home jurisdiction’s rate is higher than the work jurisdiction’s, you owe the difference. Some jurisdictions cap the credit or apply it only to specific tax types. Check both sets of rules before assuming you owe nothing extra.
Remote Work and Where the Tax Lands
Local tax codes generally follow physical presence: you owe the tax wherever you actually perform the work. Home if you work from home. The office if you commute in.
Philadelphia applies a “convenience of the employer” rule that cuts against this default. If your employer is headquartered in Philadelphia and you work remotely from the suburbs, the city may still claim withholding rights unless the remote arrangement exists out of business necessity rather than personal preference.
For hybrid workers, the math gets granular. Kansas City and St. Louis base their earnings tax on work performed inside city limits, which is why non-resident remote workers were able to claim pandemic-era refunds. Employers with hybrid staff may need to track location day by day to withhold correctly.
What Employers Have to Do
Employers carry most of the compliance load. Hire someone who works in a jurisdiction with a local tax, and you generally need to register with that authority, withhold the correct amount from every paycheck, and remit on a quarterly or monthly schedule. Skipping any step triggers penalties quickly.
Maryland’s penalty structure gives a sense of the exposure. An employer who fails to file returns or remit withheld local taxes faces penalties up to 25% of the unpaid amount. Willful failures can suspend state business licenses, and criminal convictions carry fines up to $10,000 or imprisonment up to five years.25Comptroller of Maryland. 2024 Employer Withholding Guide Officers of a business can be personally liable for amounts withheld from employees but never remitted.
The harder problem is knowing where you have an obligation in the first place. An Ohio employer with staff in five municipalities has to register with each one, or with CCA and RITA depending on the cities involved. A Pennsylvania employer needs to identify the right Act 32 collection agency for each employee’s home district. Small businesses often find out about a local obligation only after a delinquency notice arrives, once back taxes and interest are already running. Check local requirements every time you hire someone who lives or works in a new jurisdiction.