Cities That Levy Income Taxes: A Complete Guide

Cities That Levy Income Taxes: Understanding Your Local Tax Obligations

When planning your finances or considering a move to a new city, understanding local income tax obligations is crucial. While many Americans focus on federal and state income taxes, they often overlook the impact of local income taxes imposed by certain cities. Local income taxes can significantly affect your take-home pay and overall financial picture. This comprehensive guide explores which US cities levy income taxes, the rates they charge, and how these taxes compare across different regions.

What Are Local Income Taxes?

Local income taxes are levies imposed by individual cities or municipalities on the earned income of residents and sometimes non-residents who work within city limits. Unlike state income taxes, which apply across an entire state, local income taxes are city-specific and vary significantly from one municipality to another. Some cities impose substantial local income taxes, while others impose no local income tax at all. These taxes are typically used to fund municipal services, infrastructure projects, public safety, and education.

The structure of local income taxes varies by jurisdiction. Some cities tax only residents, while others extend taxation to non-residents who earn income within city boundaries. Tax rates can be flat or progressive, and they range from less than half a percent to over 3 percent. Understanding these variations is essential for accurate financial planning.

States and Cities with Significant Local Income Taxes

New York

New York City imposes one of the highest local income taxes in the nation, with rates ranging from 3.078 percent to 3.876 percent depending on income level. This substantial local tax applies to both residents and non-residents earning income within the city. Additionally, Yonkers, New York’s second-largest city, levies a local income tax equal to 16.75 percent of net state income tax liability. These taxes significantly impact residents’ disposable income and make New York one of the costliest cities for income tax purposes.

Maryland

All Maryland counties impose local income taxes on both residents and non-residents, with rates ranging from 1.75 percent to 3.20 percent. Baltimore city imposes a particularly high local income tax of 3.20 percent, making it one of the most heavily taxed municipalities in the state. These county-level taxes add a substantial burden to residents’ tax obligations beyond state income tax.

Michigan

Several Michigan cities impose local income taxes with rates ranging from 0.50 percent to 2.40 percent. Detroit, Michigan’s largest city, charges the highest local income tax rate at 2.40 percent. These taxes apply to residents and individuals working within these municipalities, affecting the effective tax rate for workers in these areas.

Indiana

Indiana presents a unique tax situation where all 92 counties in the state have local income taxes. Tax rates vary considerably across counties, ranging from 0.35 percent to 3.38 percent. This widespread local taxation means that virtually no Indiana resident escapes local income taxation, regardless of their city of residence.

New Jersey

Newark, New Jersey’s largest city, imposes a 1.0 percent tax on earned income. This local tax applies to residents and workers earning income within the city, adding an additional burden to the state’s already relatively high state income tax rates.

Missouri

Both Kansas City and St. Louis impose local earnings taxes of 1.0 percent on residents. These two major Missouri cities are among the few in the state that levy local income taxes, making them less favorable from a tax perspective compared to other Missouri cities.

Colorado

Colorado features a unique approach to local income taxation through flat monthly taxes rather than percentage-based systems. Aurora charges $2 per month, Denver charges $5.75 per month, Glendale charges $10 per month, Greenwood Village charges $4 per month, and Sheridan charges $6 per month. While these monthly amounts appear modest, they add up over time and represent an alternative approach to local income taxation.

Delaware

Wilmington, Delaware’s largest city, imposes a 1.25 percent tax on income. This local tax applies to residents and represents an additional tax burden beyond Delaware’s state-level taxation.

Alabama

Several Alabama cities impose local income taxes. Bessemer, Birmingham, and Macon County each levy a 1 percent tax on income, while Gadsden levies a higher 2 percent income tax. These local taxes vary by municipality and affect residents differently depending on their city of residence.

California

San Francisco is notable as California’s only major city that levies a local income tax, charging 0.38 percent. This relatively low rate makes San Francisco’s local income tax less burdensome than many other cities, though the city’s overall tax burden remains high when combined with state and federal taxes.

Iowa

Iowa has a complex local income tax structure with 280 local taxing jurisdictions that impose income tax surcharges ranging from 1 percent to 20 percent of state liability. This wide variation means that Iowa residents’ local tax burden depends heavily on their specific city and county of residence.

Tax-Free Cities and States: The Alternative

For those seeking to minimize their tax burden, several states offer zero local income tax options. Nine states currently have no state income tax: Alaska, Florida, Nevada, South Dakota, New Hampshire, Tennessee, Texas, Washington, and Wyoming. Within these states and others, numerous cities offer residents and workers the opportunity to avoid local income taxation entirely.

Cities like Anchorage, Alaska and Seattle, Washington impose zero local income taxes, allowing residents to keep their full paychecks. Similarly, major cities in Florida and Texas, including Miami, Dallas, Houston, Austin, and San Antonio, impose no local income taxes, making them attractive destinations for those seeking tax advantages.

Comparing Local Income Tax Burdens Across Cities

The impact of local income taxes varies significantly depending on income level and city of residence. A resident earning $75,000 annually could pay anywhere from $0 in a tax-free city to over $2,500 in a high-tax city like New York City, depending on the local tax rate and structure. This substantial difference demonstrates the importance of considering local income taxes when making financial decisions or choosing where to live.

When comparing cities, it’s essential to consider the entire tax picture, including local income taxes, sales taxes, property taxes, and state income taxes. Some cities with lower local income taxes may compensate with higher sales or property taxes. A comprehensive tax analysis helps identify truly affordable cities versus those that shift the tax burden to other forms of taxation.

Impact on Residents and Workers

Local income taxes significantly impact residents’ financial situations. For high-income earners, local income taxes can represent thousands of dollars annually in additional tax liability. Even for middle-income earners, local income taxes reduce take-home pay by a meaningful amount. Workers in cities that levy local income taxes on non-residents must pay these taxes even if they don’t live in the city, creating a unique financial burden for commuters.

The cumulative effect of local income taxes combined with state and federal taxes can create exceptionally high total tax burdens in some cities. Understanding these cumulative effects is essential for financial planning, retirement decisions, and career opportunities. A job opportunity in a high-tax city might yield less net income than a similar position in a lower-tax location, even if the gross salary is higher.

How Cities Use Local Income Tax Revenue

Cities that collect local income taxes typically dedicate these revenues to essential municipal services. Common uses include funding public safety departments, maintaining infrastructure, supporting education systems, providing public transportation, and developing recreational facilities. Understanding how your local income tax is spent can provide context for these financial obligations and help residents advocate for efficient government spending.

Planning Your Finances Around Local Income Taxes

If you live or work in a city with local income taxes, several strategies can help you manage this financial obligation. Keep detailed records of local tax payments for potential deductions on state and federal tax returns. Consider whether relocation to a tax-free city might benefit your financial situation, particularly if you work remotely or have flexibility in your work location. Additionally, understanding the relationship between local income taxes and other city services can help you make informed decisions about where to live and work.

Recent Trends in Local Income Taxation

As of 2025, several states are actively considering changes to their income tax structures. Nine states are cutting income taxes, including Hawaii, Alaska, Florida, South Carolina, Georgia, Alabama, North Carolina, and Tennessee. These changes suggest a broader trend toward reducing income tax burdens, though local income taxes remain in place in many major cities. Communities may face pressure to maintain local income taxes to fund essential services even as state income taxes are reduced.

Key Considerations When Relocating

When considering relocating to a new city, local income tax should be a primary consideration alongside other factors. If you’re relocating for employment, calculate the true value of your job offer by accounting for local income taxes. A higher-paying job in a high-tax city might yield less take-home income than a lower-paying job in a tax-free city. Additionally, consider your long-term plans; if you’re planning to retire in your new city, understanding how local taxes affect retirement income is essential.

Frequently Asked Questions

Do all cities levy local income taxes?

No, many cities impose no local income taxes. Cities in states like Florida, Texas, Nevada, and Washington have no local income taxes. Even within states that allow local income taxation, many cities choose not to implement them.

Can local income taxes apply to non-residents?

Yes, in many jurisdictions, local income taxes apply to non-residents who earn income within city limits. This means commuters working in high-tax cities may owe local income taxes even though they live elsewhere.

Are local income taxes deductible?

Local income taxes are generally deductible as state and local taxes (SALT) on federal income tax returns, subject to the current $10,000 annual deduction limit. Consult with a tax professional to understand your specific situation.

How do local income taxes compare to property and sales taxes?

This varies by city. Some cities rely heavily on local income taxes while maintaining lower property and sales taxes, while others shift their tax burden to property and sales taxes. Analyzing the complete tax picture is essential when comparing cities.

What percentage of my income goes to local taxes?

Local income tax rates vary from as low as 0.35 percent in some Indiana counties to as high as 3.876 percent in New York City. The percentage depends entirely on your city of residence or work.

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Sneha TeteBeauty & Lifestyle Writer

 

Sneha is a relationships and lifestyle writer with a strong foundation in applied linguistics and certified training in relationship coaching. She brings over five years of writing experience to fundfoundary,  crafting thoughtful, research-driven content that empowers readers to build healthier relationships, boost emotional well-being, and embrace holistic living.

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