When you look at your paycheck, you’ll usually see federal and state taxes. But in many cities, counties, and school districts, there’s another layer: local income taxes. These can take the form of a flat percentage, a tiered rate, or even a fixed fee. Knowing how to calculate them in 2025 helps you better understand your true take-home pay.
What Are Local Taxes on a Paycheck?
Local taxes are additional withholdings imposed by a city, county, or district. They are used to fund services like schools, transportation, and public safety.
Common structures include:
- Flat percentage – Example: Cleveland, OH charges about 2.5% of wages.
- Progressive tier – Example: New York City rates vary by income bracket.
- Fixed fee – Example: Denver applies a flat monthly occupational tax of a few dollars.
Step-by-Step: How to Calculate Local Taxes in 2025
- Start with Gross Pay
- Hourly: Hourly rate × hours worked (including overtime).
- Salary: Annual salary ÷ number of pay periods.
- Subtract Pre-Tax Deductions (if applicable)
Some localities exclude pre-tax deductions (401k, health insurance, HSA). Others do not. Always check your local tax office rules. - Find Your Local Tax Rate or Fee
- Flat rate: Multiply taxable wages by the percentage.
- Progressive: Apply the correct bracket percentage.
- Fixed fee: Add the set amount.
- Calculate the Withholding
Use the formula:Taxable Pay = Gross Pay – Pre-Tax Deductions Local Tax = Taxable Pay × Local Rate (or fixed fee) - Adjust for Residency or Multiple Jurisdictions
If you live in one city and work in another, you may owe to one or both, depending on local rules.
Example Calculation
Case: Cleveland, OH – Flat 2.5% Tax
- Gross monthly pay: $4,000
- Pre-tax deductions: $200 (health insurance)
- Taxable wages: $3,800
- Local tax: 2.5% × $3,800 = $95 withheld
Case: Denver, CO – Fixed Fee
- Gross monthly pay: $4,000
- Fee: $5 per month
- Local tax: $5 withheld
Why Local Taxes Matter in 2025
- They can reduce your paycheck more than you expect, especially in cities like New York or Philadelphia.
- Local tax compliance prevents penalties.
- Understanding your tax structure helps you plan take-home pay more accurately when budgeting or considering job offers.
FAQs About Local Paycheck Taxes
1. What’s considered a local tax?
Any tax charged by your city, county, or district in addition to federal and state income tax.
2. Do pre-tax deductions lower local tax liability?
It depends on the jurisdiction. Some allow deductions (like retirement), while others calculate before deductions.
3. What if I live in one city and work in another?
Rules vary—sometimes you pay the work city, sometimes your home city, sometimes both with credits applied.
4. How do I find my local tax rate?
Check your city or county tax office or use tools like SmartAsset or TakeHomeCalculator.
5. Can multiple local taxes apply to one paycheck?
Yes. Some areas impose both city and school district income taxes.
Bettye is the creator of CityPaycheckCalculator.com, a resource designed to help individuals quickly and accurately estimate their take-home pay across U.S. cities. With a strong focus on clarity, accuracy, and user experience, Bettye provides reliable paycheck calculators and helpful insights to support smarter financial decisions. Her mission is to make complex payroll and tax information simple and accessible for everyone.