Local Income Tax by State: Which Cities Tax Your Pay

The four mechanisms

How do local income taxes work across the US?

Local income taxes come in four fundamentally different mechanisms, and understanding which one your city uses determines everything about how the tax applies:

1. Work-location based (Ohio, PA for nonresidents, MO)

Your employer withholds city tax based on where you physically work. If you commute from a suburb to downtown, the downtown city gets your tax. Your home city may give you a credit to prevent double taxation. This is the most common mechanism and the source of the most confusion, especially for remote workers.

2. Residence-based (NYC, MD counties, IN counties)

You pay based on where you live. Where you work does not matter. NYC residents pay NYC tax even if they commute to New Jersey. Maryland residents pay their county's rate even if they work in DC. This is simpler but means you cannot avoid the tax by working remotely or commuting elsewhere.

3. Flat per-person charge (Denver OPT, PA LST)

A fixed dollar amount per person per month or year, regardless of income. Denver's OPT is about $5.75/month. Pittsburgh's LST is $52/year. These are the simplest taxes but the least progressive — a minimum-wage worker pays the same as a CEO.

4. Employer-only (Newark, San Francisco)

The tax is paid by the employer, not deducted from employee paychecks. Workers in these cities pay zero local tax on their earnings. The employer calculates the tax based on total payroll or gross receipts and remits it to the city.

Which states have NO local income tax?

The majority of states do not allow cities or counties to levy local income taxes. States with no state income tax (Florida, Texas, Nevada, Tennessee, Wyoming, South Dakota, Alaska, New Hampshire, Washington) by definition have no local income tax either. Many states with a state income tax (California, Illinois, Georgia, Virginia, etc.) also do not permit local income taxes, though some have related mechanisms like Illinois's lack of city tax or California's business-only taxes.

What about remote workers?

Remote work has disrupted local income tax systems across the country. The key question is whether the tax follows the worker's home location or the employer's office location:

• Ohio: Pandemic-era rules letting employers withhold based on office location have expired. Tax now follows where work is physically performed.
• NYC: Residents always pay regardless. Nonresidents do not pay NYC tax. New York's convenience-of-the-employer rule affects state tax but not city tax.
• Philadelphia: Nonresidents can claim refunds for remote-work days outside the city.
• Maryland/Indiana: Residence-based, so remote work does not change your rate.

The trend is toward taxing where work is physically performed, which benefits remote workers who moved out of high-tax cities. But each city's rules are different, and some employers have not updated their withholding systems to reflect the new reality.

What if your employer is withholding the wrong local tax?

Incorrect local tax withholding is one of the most common payroll errors in the US, particularly for workers who live in one taxing jurisdiction and work in another. The correction process depends on the state:

• Ohio: File returns with both RITA/CCA (for the incorrect city) and the correct city. Claim a refund from the wrong city and pay the correct city.
• Pennsylvania: File a new IT-2104 with your employer. Claim a refund on your annual return for the incorrect withholding.
• NYC/Yonkers: File your IT-201 with the correct home address. The return automatically calculates the correct local tax and refunds over-withholding.
• Maryland/Indiana: Since these are collected through the state return, errors are usually caught when you file. If your employer uses the wrong county rate for withholding, the state return reconciles the difference.

In all cases, the fastest fix is to update your address and filing information with your employer's payroll department. For refunds of past over-withholding, you generally need to file with the specific municipality or tax agency that received the incorrect payment.

How do local taxes affect job offer comparisons?

When comparing job offers in different cities, local income tax can make a meaningful difference in take-home pay. A $100,000 offer in Columbus, Ohio (2.5% city tax) puts roughly $2,500 less in your pocket than the same salary in a Texas city (no state or local income tax). A $100,000 offer in NYC costs the resident approximately $3,500 in city tax alone. Denver's $69/year OPT is negligible by comparison.

Our city take-home calculators factor in local taxes automatically. For any specific city, check the relevant page linked in the table above for the mechanism details that determine your actual obligation.