A local tax is any tax levied by a government entity below the state level — including cities, counties, municipalities, school districts, fire districts, and special taxing districts. Local taxes fund essential services like police, fire departments, schools, road maintenance, and local government operations. They are in addition to state and federal taxes.

Do all states have local income taxes?

No — only about 20 states authorize local income taxes. The states with local income taxes include: Ohio (school district income tax), Pennsylvania (Philadelphia and Pittsburgh wage taxes), Kentucky, Indiana, Michigan, Missouri, Alabama, and others. Most states (about 30) do not have local income taxes. Local income taxes typically range from 0.5% to 4% depending on the jurisdiction.

How do I find out what local taxes I owe?

For local income taxes: check with your city or municipal tax department — many have online portals. For local property taxes: contact your county assessor's office. Your employer should withhold local income taxes if you work in a jurisdiction that has them. For business local taxes: check with your city clerk or local chamber of commerce. The specific local tax requirements depend heavily on where you live and work.

Are local taxes deductible on my federal return?

Yes — local taxes are deductible as itemized deductions on Schedule A (Form 1040). This includes: (1) Local and state income taxes (or sales taxes in lieu of income taxes), subject to the $10,000 SALT cap; (2) Local property taxes on real estate. Note: the SALT cap ($10,000 total for state and local taxes combined) significantly limits the benefit of high local tax deductions.

Tax

What is Local Tax?

Local taxes are taxes levied by cities, counties, school districts, and special districts. Learn about local income taxes, property taxes, sales taxes, and other local levies that affect your personal and business finances.

What Is a Local Tax?

A local tax is any tax imposed by a governmental entity below the state level — cities, counties, school districts, fire departments, special assessment districts, and other local jurisdictions. These taxes fund the day-to-day services that directly affect your community: schools, police and fire protection, road maintenance, parks, water and sewer systems, and local government administration. Schema DefinedTerm: Local tax — a tax levied by a city, county, school district, or other local government entity, typically including property taxes, local income taxes, local sales taxes, and local business taxes, used to fund local public services. Local taxes vary enormously by jurisdiction. A resident of Columbus, Ohio pays different local taxes than someone in Austin, Texas. Understanding your local tax obligations is essential for accurate financial planning and tax compliance.

Major Types of Local Taxes

1. Local Property Taxes The largest source of local tax revenue. Property taxes are levied on real estate (land and buildings) by counties, cities, school districts, and special districts. They are calculated based on the assessed value of property and local tax rates (expressed as mills — $1 per $1,000 of assessed value). Typical local property tax breakdown: - County services: ~25-35% of revenue - School district: ~40-60% of revenue - City/municipal services: ~15-30% - Special districts (fire, library, transit): ~5-15% 2. Local Income Taxes About 20 states authorize local income taxes, most commonly: Ohio School District Income Tax: - Levied by individual school districts (over 600 Ohio school districts) - Rates range from 0.5% to 2.5% - Based on Ohio taxable income (federal adjusted gross income with adjustments) Pennsylvania Local Wage Taxes: - Philadelphia: 3.75% resident wage tax + 3.75% non-resident tax (4.5% for certain income) - Pittsburgh: 3% resident wage tax - Other Pennsylvania municipalities may impose similar taxes Municipal Income Taxes in other states: - Missouri (St. Louis, Kansas City, and others) - Indiana (many cities and towns) - Michigan (Detroit, and others) - Kentucky (most cities) - Alabama (Birmingham, Montgomery, and others) 3. Local Sales Taxes Most states allow local governments to add a local sales tax on top of the state rate. The combined state + local rate varies by location: - Example: Louisiana state sales tax ~4.45%, plus local taxes up to ~7%, total up to ~11.45% - Local sales taxes typically apply to the same goods as state sales tax - Some states restrict local sales tax to certain categories (restaurant meals, hotel stays) 4. Local Business Taxes Many cities impose additional taxes on businesses operating within their borders: - Gross receipts taxes (on total business revenue) - Business license taxes (flat fees or based on revenue) - Restaurant/meal taxes (additional tax on prepared food) - Hotel/occupancy taxes (on short-term rentals) 5. Local Excise Taxes Taxes on specific goods and services at the local level: - Utility taxes (electricity, gas, water) - Alcohol and tobacco taxes - Vehicle registration fees (local portion) - Parking taxes

Local Tax Compliance for Freelancers

As a freelancer, local taxes affect you in several ways: If you work in a city with a local income tax: Your employer (or clients paying you) may need to withhold local taxes on your wages. If you're self-employed, you may need to file a local income tax return directly. Business license requirements: Many cities require freelancers and small businesses to purchase an annual business license, which may be a flat fee or based on revenue. Local gross receipts taxes: Some cities tax business revenue regardless of profitability.

Real-World Example

Scenario: Devon lives in Columbus, Ohio and works as a freelance software developer. His local tax obligations include: 1. Franklin County property tax (owns a condo): ~$3,800/year 2. Ohio school district income tax (Columbus City SD rate: 2.5%): If Devon's net Schedule C income is $95,000 → $2,375 local income tax 3. City of Columbus income tax: Columbus doesn't impose a separate city income tax 4. Local sales tax (Franklin County): 7.5% on purchases Total local tax burden: ~$6,175/year

How Eonebill Helps

Local taxes can represent a significant financial obligation that many freelancers overlook. Eonebill's expense tracking helps you estimate and plan for local tax payments, including quarterly estimated payments for local income taxes where required. Always check with your local tax authority or a CPA familiar with local tax rules.

Related Terms

- Property Tax — the primary local tax for homeowners - State Income Tax — state-level income tax - SALT Deduction — the $10,000 combined state and local tax deduction cap

Related Templates

- Local Tax Estimate Calculator - Quarterly Tax Payment Tracker

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Key Takeaways

A local tax is any tax levied by a government entity below the state level — including cities, counties, municipalities, school districts, fire districts, and special taxing districts.

The most common local taxes are: (1) Local property taxes (on real estate and sometimes vehicles) — the largest source of local tax revenue; (2) Local income taxes — levied by cities and municipalities in about 20 states (notably Ohio, Pennsylvania, Kentucky, Indiana, Michigan, and Missouri); (3) Local sales taxes — added to state sales tax in most states; (4) Local excise taxes (on utilities, hotels, restaurants, alcohol, tobacco); (5) Local business taxes (gross receipts taxes, business license taxes).

No — only about 20 states authorize local income taxes.