City and Local Income Taxes: Who Pays Them and How They Work

The Third Layer of Income Tax

Local income taxes work like a miniature version of state income tax. A city (or county, or school district) sets a rate, your employer withholds it from each paycheck, and the money funds local services — schools, police, roads, transit. Two things make local taxes different from the federal and state layers, and both usually work against you:

• They're usually flat, from the first dollar. There's typically no standard deduction and no brackets. A 2% local tax means 2% of your wages, starting at dollar one.
• Pre-tax deductions often don't help. Many local taxes are calculated on your Medicare wages (W-2 Box 5) rather than your federal taxable wages (Box 1). In Ohio, for example, that means a traditional 401(k) contribution lowers your federal taxable income but does not lower your municipal taxable wages.

The upside: rates are small compared to federal tax. The downside: because they apply to nearly every dollar, they take a bigger bite than the headline rate suggests.

Where Local Income Taxes Exist

Local income taxes are concentrated in a handful of states. The big ones to know:

• New York City — NYC residents pay a personal income tax of roughly 3.1–3.9% depending on income, layered on top of New York State tax. It applies to residents; commuting into the city from New Jersey or Long Island doesn't trigger it.
• Yonkers, NY — Residents pay an income tax surcharge calculated as a percentage of their New York State tax, and nonresidents who work in Yonkers pay a small earnings tax.
• Philadelphia — The city wage tax is about 3.7% for residents, with a slightly lower rate for nonresidents who work in the city. It's one of the heaviest city taxes in the country, and it applies to wages with essentially no deductions.
• Pennsylvania municipalities — Outside Philadelphia, most PA municipalities and school districts levy a local earned income tax, typically about 1%, collected through payroll withholding.
• Ohio municipalities — Hundreds of Ohio cities and villages levy municipal income taxes, commonly 1–3%. Both where you live and where you work can matter, which we'll get to below.
• Maryland counties — Every Maryland county (plus Baltimore City) piggybacks a local income tax on the state return, about 2.25–3.2% depending on the county. It's collected with state withholding, so many Marylanders never notice it as a separate line.
• St. Louis and Kansas City — Both Missouri cities levy a 1% earnings tax on people who live or work there.

A few other pockets exist — Indiana counties, some Kentucky and Michigan cities, and flat per-month "occupational privilege" fees in a few places — but the list above covers where most affected workers live.

How Local Withholding Works: Work City vs. Home City

Here's where local taxes get genuinely confusing. With federal and state tax, withholding follows fairly uniform rules. With local taxes, two different governments can both have a claim on the same paycheck: the city where you work and the city where you live.

The general pattern, using Ohio as the clearest example:

1. Your employer withholds for the work city. If your office is in a city with a 2.5% tax, 2.5% comes out of your check, regardless of where you sleep at night.
2. Your home city may also tax you. If you live in a different municipality that has its own income tax, you owe that city too.
3. Credits between them vary. Many home cities give you a credit for tax paid to your work city — sometimes a full credit, sometimes only partial, sometimes none at all. A home city might credit only up to a portion of its own rate, leaving you paying real money to both.

Pennsylvania handles this with a general rule that you pay the higher of your home rate or your work-location rate, sorted out through the payroll system. Maryland keeps it simple by taxing based on where you live. New York City taxes residents only. There's no single national rule — which is exactly why this catches people during job changes and moves.

Remote work wrinkle: If you work from home, your "work city" may now be your home city — which can raise or lower your local tax depending on the two rates. Some cities also try to tax remote workers whose employers are based there. If this is your situation, our guide to remote work and state taxes covers the same problem one level up.

Why Two Neighbors With the Same Salary Take Home Different Pay

Picture two neighbors on the same street in an Ohio suburb, both earning $65,000. One commutes downtown to a city with a 2.5% income tax. The other works at an office park in a township with no income tax.

The downtown commuter has 2.5% of every paycheck withheld for the work city — about $1,625 over the year. Whether any of that comes back depends on the home city's credit rules. If their suburb levies its own 2% tax and grants only a partial credit for taxes paid elsewhere, the commuter can end up paying more in combined local tax than the neighbor pays in total — on identical salaries, living on the same street.

Federal and state tax will be the same for both. The entire take-home gap comes from the local layer, which is why it's invisible if you only compare salaries and never compare pay stubs.

How Local Taxes Stack: A Worked Example

Local tax never replaces federal or state tax — it stacks on top. Here's the full picture for a single filer earning $60,000 who works in an Ohio city with a 2% municipal tax. (The federal numbers are exact for 2026; the local layer is the directional part.)

• Federal income tax: $60,000 minus the $16,100 standard deduction leaves $43,900 of taxable income. The first $12,400 is taxed at 10% ($1,240) and the remaining $31,500 at 12% ($3,780) — about $5,020.
• FICA: Social Security at 6.2% plus Medicare at 1.45% is 7.65% of the full $60,000 — $4,590.
• State income tax: Varies by state; Ohio's is modest by national standards, but it's a real line on the stub.
• Municipal tax: 2% of $60,000 — $1,200, with no standard deduction to soften it.

That $1,200 works out to about $46 per bi-weekly paycheck. Notice something: the municipal tax on this salary is a meaningful fraction of the federal bill, even though 2% sounds tiny next to the 22% federal bracket. Flat taxes on gross wages punch above their weight because nothing shields the first dollar.

And remember the 401(k) trap from earlier: contributing $10,000 to a traditional 401(k) would cut this person's federal taxable income to $33,900 — but in Ohio the municipal tax would still be calculated on the full wage base, because municipal taxable wages track Box 5, not Box 1.

How to Check Your Own City

Three practical steps:

1. Read your pay stub. Look for a line labeled with a city name, "local," "LCL," "occupational," or "EIT." If it's there, you're paying. Boxes 18–20 of your W-2 show the same thing at year-end.
2. Check both your home and work addresses. Search "[city name] income tax" on the city's official website, or your county's site in Maryland and Indiana. In Ohio and Pennsylvania, the state maintains lookup tools that map any address to its local tax jurisdiction and rate.
3. Ask payroll after any move or job change. Employers withhold based on the addresses they have on file. An outdated address can mean withholding for the wrong city all year — a mess to unwind at filing time.

If you're weighing a move or a job offer across city lines, run the numbers for your actual locations rather than assuming state tax tells the whole story. Our state calculators for Ohio, New York, and Pennsylvania cover the three states where local taxes bite hardest.

See your full paycheck picture: The Ohio paycheck calculator breaks down federal, state, and municipal withholding for your city in one place — so you can see exactly how much of the gap between gross and net pay is the local layer.