Local income taxes explained

What a local income tax is

A local income tax is a tax on earnings charged by a government smaller than a state: a city, a county, a school district, or a special district such as a transit authority. The Tax Foundation counts local income taxes in more than a dozen states, levied by thousands of separate jurisdictions. Most of them are in Pennsylvania and Ohio, where nearly every town or school district has one, but some of the largest are single cities: New York City, Philadelphia, Detroit, Kansas City and St. Louis.

For a worker, the important thing is that a local tax is a separate line on top of state tax. It is usually withheld by your employer along with federal and state tax, and it can be larger than the state tax itself. In Columbus, Ohio, for example, the city charges 2.5% of wages, which for many people is more than Ohio's state income tax.

The names they go by

• City or county income tax: the plain version, as in New York City, Maryland's counties and Indiana's counties.
• Wage tax or earnings tax: Philadelphia's wage tax, and the earnings taxes in Kansas City and St. Louis.
• Earned income tax (EIT): Pennsylvania's local tax, split between the municipality and the school district.
• Occupational license tax: Kentucky and some Alabama cities, charged on wages earned within the city or county.
• Occupational privilege tax or head tax: a flat dollar amount each month, as in Denver, rather than a percentage.
• School district income tax: in Ohio and Iowa, paid by residents of districts that adopt one.

Four questions that decide what you owe

1. Does it follow where you live or where you work?

This is the biggest difference between local taxes. New York City's tax applies only to residents, so a commuter from New Jersey or Westchester does not pay it. Maryland and Indiana county taxes are also based on where you live (Indiana uses the county you lived in on January 1). Philadelphia, Detroit, Kansas City, Ohio cities and Kentucky occupational taxes apply to people who work there as well, so you can owe a city tax in a place you do not live. Philadelphia, for example, charges residents 3.735% and commuters 3.425%; Detroit charges commuters 1.2%, half its resident rate.

2. What pay does it apply to?

Some local taxes use your state taxable income, so the standard deduction and a traditional 401(k) lower them. Others are charged on gross wages or Medicare wages, so a 401(k) does nothing for them. A Philadelphia resident earning $75,000 who puts $7,500 into a traditional 401(k) still pays $2,801 in wage tax, against $2,801 without it: the city taxes the contribution anyway. The 401(k) guide covers this in more detail.

3. Is it a flat rate, brackets, or a flat fee?

Most local taxes are a single percentage. New York City uses brackets, from 3.078% to 3.876%. Yonkers charges a surcharge equal to a share of your New York State tax. Portland's Metro and Multnomah County taxes apply only to income above a high threshold. Denver's occupational privilege tax is a small flat amount each month.

4. Do you get a credit if two places tax you?

If you live in one taxing city and work in another, you may owe both. Ohio cities usually give their residents a full or partial credit for tax paid to the city where they work, so you end up paying roughly the higher of the two rates. Pennsylvania employers withhold the higher of your home and work rates. Michigan and Missouri cities have their own rules. Check your city's instructions if you are in this situation.

How much difference it makes

On $75,000 a year, a single person living in New York State outside the city takes home about $57,784. The same person living in one of the five boroughs pays $2,472 in city tax and takes home $55,312. Kansas City and St. Louis take 1% of earnings from residents and commuters alike. The home page shows more same-state comparisons, and the local tax table works out every local tax in the calculator on the same salary.

Local taxes in this calculator

The calculator covers 143 local income taxes. It includes every county in Maryland and Indiana and the largest cities elsewhere. Pennsylvania's EIT is included for Philadelphia and Pittsburgh only, and Ohio's for the six largest cities, because there are thousands of smaller ones. If your place is missing, enter its rate under "W-4 and other details".

How to find out whether you owe one

1. Look at a recent pay stub. Local taxes appear under names such as "NYC", "PHL wage", "Local", "City", "EIT", "OLT" or a county name.
2. Check your state's page here; each one has a section on city and county taxes and links to the official source.
3. Search your city or county name with "income tax" or "earned income tax". Official city and state revenue sites list the current rate.
4. If you work from home for an employer based in a taxing city, ask payroll which locality they withhold for. Rules for remote workers differ from place to place.

If a local tax should be withheld and is not, you may owe it when you file, sometimes on a separate city return. Fixing the withholding with your employer early avoids a surprise bill.