Background

Local income taxes (city, county, school district) fund services like schools, police, and public works. Remote work growth since 2020 has increased the number of taxpayers subject to these local levies and raised disputes about which jurisdiction can tax particular pay. Local rules vary widely and are set by state or municipal law (see IRS and state tax guidance for details) (IRS: https://www.irs.gov).

How local taxes apply to remote workers

  • Residency rules: Many local governments tax full-time residents on worldwide income. If you’re a resident of a city with a local tax, you typically owe that tax regardless of your employer’s location. (Example: New York City resident tax can reach 3.876% on higher incomes.)
  • Source rules: Some localities tax income earned in the jurisdiction. If you work physically in multiple places, income may be allocated based on days or where services were performed.
  • Employer withholding vs. employee responsibility: Employers may withhold local taxes for the employer’s location or the employee’s residence—but not always. When withholding is incorrect or absent, the worker is responsible at filing time.

(For practical steps on multistate filing and where to report remote work, see FinHelp’s guide on multistate filing: “Tax Considerations for Remote Employees Working in Multiple States” and our briefing on “Sourcing Rules for Multistate Income: Where to Report Remote Work”.)

Real-world examples

  • A remote employee who moved to a new city with a local tax found themselves owing a full year’s local tax because the city considers them a resident as soon as they take up primary residence.
  • A consultant who split time between a low-tax suburb and a high-tax city had to apportion income using the city’s day-count rule to reduce double taxation.

Who is affected

Remote employees, freelancers, gig workers, and business owners who live in one locality and perform work for entities based elsewhere. Also relevant for cross-border telecommuters (state lines) and those who split workdays between jurisdictions.

Practical strategies (professional tips)

  1. Confirm local residency definitions: Cities/counties may use different tests (primary residence, number of days, voter/driver registration). Check local tax authority rules.
  2. Track where you work: Keep a contemporaneous log (dates, hours, location) to support sourcing or apportionment rules at tax time.
  3. Review employer withholding: Ask payroll whether they will withhold for your residence or work location and request adjustments in writing.
  4. Use credits where available: Some states/locals provide credits to residents taxed by other jurisdictions—confirm eligibility and documentation needs.
  5. Consult a tax pro when in doubt: Multijurisdictional issues can trigger unexpected filing requirements and penalties.

Common mistakes

  • Assuming only the employer’s location matters. Remote workers are often taxed where they live or where work is performed.
  • Failing to adjust withholding after a move. That can create large underpayments and penalties.
  • Poor recordkeeping. Without records on where work was performed, apportionment claims are harder to substantiate.

Short FAQs

  • Do remote workers pay local taxes? Yes—if your residence or the place where you perform work is subject to a local income tax. (Check your local tax office.)
  • What if my employer is in a different state? You may still owe local taxes to your city or county of residence and possibly file returns in the employer’s state if the state taxes nonresidents or requires withholding.

Internal resources

Authoritative sources & further reading

  • Internal Revenue Service — general guidance on state and local tax issues: https://www.irs.gov
  • Your state and local tax agency websites (search “local income tax” plus your city/county name).
  • NYC Department of Finance for New York City resident tax rates (example): https://www1.nyc.gov/site/finance/index.page

Professional disclaimer

This page provides general educational information, not legal or tax advice. For guidance tailored to your situation, consult a licensed tax professional or your local tax authority.