16 states permit municipal, county or school-district income taxes. They are administered separately from the state tax, they are frequently missed in multi-state payroll setups, and — critically — state reciprocal agreements almost never cover them.
| State | How local income tax works there |
|---|---|
| Alabama | Municipal occupational license taxes are withheld by employers in a number of cities (e.g., Birmingham 1%, Gadsden 2%, Auburn 1%). These are city-administered, not administered by the Alabama Department of Revenue, and are NOT covered by any state-level exemption. |
| Colorado | Several Colorado cities (Denver, Aurora, Glendale, Greenwood Village, Sheridan) impose an Occupational Privilege Tax -- a flat monthly per-employee 'head tax' with both an employee-withheld portion and an employer portion. It is not an income-based tax. Colorado also has the state-run FAMLI paid leave premium. |
| Delaware | The City of Wilmington imposes a 1.25% earned income (wage) tax on residents and on nonresidents working in Wilmington, plus a separate employer head tax. Administered by the City of Wilmington, not the Delaware Division of Revenue. |
| Iowa | Iowa school districts may levy an income surtax and counties may levy an emergency services surtax, both computed as a percentage of state income tax liability. These are assessed on the individual's Iowa return -- they are NOT withheld by the employer through payroll. |
| Indiana | EVERY Indiana county imposes a Local Income Tax (LIT), withheld by the employer. CRITICAL: Indiana's reciprocity agreements do NOT cover county LIT -- employers must still withhold county tax from residents of reciprocal states who have a principal place of employment in an Indiana county as of January 1. Employees expecting 30 or fewer Indiana workdays may file Form WH-4AFF to claim a county tax exemption. |
| Kansas | Some Kansas counties and townships levy a local intangibles tax on interest and dividend income only. It does NOT apply to wages and is NOT withheld through payroll -- for payroll purposes Kansas should be treated as having no local wage tax. |
| Kentucky | Kentucky cities, counties and school districts levy occupational license (payroll) taxes ranging roughly 0.008%-2.5% (e.g., Louisville Metro, Lexington-Fayette). These are administered locally and are NOT covered by Kentucky's state reciprocity agreements -- reciprocal-state residents still owe local occupational tax on Kentucky work. |
| Maryland | EVERY Maryland county and Baltimore City imposes a local income tax, collected together with the state tax through payroll withholding at combined state+local rates. Nonresidents working in Maryland who are not covered by reciprocity pay a special nonresident rate (state rate plus a statutory nonresident surcharge) in lieu of a county rate. |
| Michigan | 24 Michigan cities levy a municipal income tax (Detroit at 2.4% resident / 1.2% nonresident; most others 1% resident / 0.5% nonresident). Employers in those cities must withhold city tax separately. Michigan's state reciprocity agreements do NOT exempt an employee from Michigan CITY income tax on work physically performed in the city -- Detroit in particular taxes nonresidents on Detroit workdays. |
| Missouri | Kansas City and St. Louis each impose a 1% earnings tax on residents and on nonresidents for work performed in the city, withheld by employers. Both cities also impose employer-side payroll expense taxes. |
| New Jersey | Newark imposes a 1% payroll tax, but it is an EMPLOYER-paid tax on wages, not withheld from employees. New Jersey also has substantial employee-paid state programs withheld through payroll: Unemployment Insurance, Workforce Development, Temporary Disability Insurance and Family Leave Insurance. |
| New York | New York City imposes a resident personal income tax and Yonkers imposes a resident income tax surcharge plus a nonresident earnings tax -- all withheld through payroll (see Form IT-2104.1 for nonresident allocation). The Metropolitan Commuter Transportation Mobility Tax (MCTMT) is an employer-paid tax on payroll in the MTA region, not withheld from employees. |
| Ohio | Ohio has the most extensive local income tax system in the country -- roughly 600 municipalities and 180+ school districts levy income taxes, withheld by employers. Municipal tax is generally owed where the work is physically performed (subject to a 20-day occasional-entrant rule); school district tax is generally owed based on the employee's residence school district (Form IT 4 identifies it). CRITICAL: Ohio's state reciprocity agreements do NOT exempt a nonresident from Ohio MUNICIPAL income tax on work performed in an Ohio city. |
| Oregon | Oregon has multiple employee-withheld local taxes: the Multnomah County Preschool for All personal income tax, the Metro Supportive Housing Services personal income tax, the Eugene Community Safety Payroll Tax, and the statewide transit tax (0.1% of wages). TriMet and Lane Transit District payroll taxes are employer-paid. Oregon also has the state Paid Leave Oregon employee contribution. |
| Pennsylvania | Roughly 2,470 municipalities and 469 school districts levy an Earned Income Tax (EIT) and/or a Local Services Tax (LST), withheld by employers under Act 32. Philadelphia's Wage Tax is separate from the Act 32 system. CRITICAL: the PA/NJ reciprocal agreement does NOT cover the Philadelphia Wage Tax -- New Jersey residents working in Philadelphia still owe it. |
| West Virginia | Several West Virginia municipalities (e.g., Charleston, Huntington, Parkersburg, Weirton) impose a flat per-week City Service Fee (roughly $2-$5 per week) on people who work in the city, withheld by employers. It is a flat head-fee, not a percentage-of-income tax, and is not covered by state reciprocity. |
Resident versus work-location local taxes
Local income taxes divide into two families. Resident taxes follow the employee's home address and apply regardless of where the work happens; work-location taxes follow the job site. A remote employee can therefore owe a resident local tax with no work-location tax at all, or owe both with a partial credit between them. Ohio and Pennsylvania both run systems where an employee is potentially exposed to two municipalities at once, resolved by a credit rather than an exemption.
This is a determination aid, not advice.
StateSide encodes published state rules and applies them mechanically to the facts you enter. It does not know your
entity structure, your nexus history, your equity compensation, or the dozens of exceptions that turn a clean rule into
a judgement call. Every determination cites the state source it came from — verify against that source, and take
anything consequential to a payroll tax professional before you act on it.