In addition to federal and state taxes, many freelancers also owe local taxes—city taxes, county taxes, business license taxes, and more. These local taxes are often overlooked but can add up significantly. Understanding what local taxes apply to you, how much you'll pay, and how to comply is critical for staying compliant. This comprehensive guide explains everything freelancers need to know about local business taxes in 2026.
Understanding Local Business Taxes
The basics:
What Are Local Taxes?
Local taxes = Taxes paid to city, county, or other local governments
In addition to: Federal and state taxes
Types: Income taxes, business license taxes, gross receipts taxes, etc.
Who Must Pay?
Depends on location:
- Some cities/counties: Tax all residents
- Some cities/counties: Tax businesses operating there
- Some areas: No local income taxes
Check your location: Rules vary by city/county
Types of Local Taxes
Understanding the different types:
City Income Taxes
Some cities charge income tax on residents or people who work there
Examples:
- New York City: Up to 3.876%
- Philadelphia: 3.87%
- Washington DC: 4% to 10.75%
- Many other cities
Impact: Can add 1-4% to your total tax rate
County Taxes
Some counties charge income tax
Less common than city taxes, but some counties do charge
Check your county: Rules vary
Business License Taxes
Many cities/counties require business licenses
Cost: Varies ($50-$500+ per year, typically)
Required: Even for home-based businesses in some areas
Gross Receipts Taxes
Some cities charge tax on gross receipts (revenue)
Different from: Income tax (taxed on revenue, not profit)
Examples: Some cities in California, Washington, etc.
City Income Taxes
Understanding city taxes:
Cities That Tax Income
Major cities with income taxes:
- New York City: Up to 3.876%
- Philadelphia: 3.87%
- Washington DC: 4% to 10.75%
- Baltimore: 3.2%
- Detroit: 2.4%
- And many others
Most cities: Don't have income tax
Check your city: Rules vary
How City Taxes Work
Similar to state taxes:
- Based on income
- Usually calculated from federal AGI
- Separate filing required
Example: New York City
- If you live/work in NYC: Pay NYC tax (in addition to NY state tax)
- Rate: Up to 3.876%
- Can add thousands to your tax bill
Real City Tax Example
Scenario: $100,000 income, New York City resident
Federal tax: ~$15,000 NY state tax: ~$6,000 NYC tax: ~$3,500 (3.5% effective rate) Total: ~$24,500
Compare to Texas (no state or city income tax):
- Total: ~$15,000
- Difference: $9,500 (from state + city taxes)
County Taxes
Understanding county taxes:
Counties That Tax Income
Some counties charge income tax
Less common than city taxes, but some do
Examples: Some counties in Maryland, Ohio, etc.
Check your county: Rules vary
Business License Taxes
Understanding business licenses:
Who Needs a Business License?
Many cities/counties require business licenses for:
- Operating a business
- Home-based businesses
- Even freelancers
Check your location: Requirements vary
Business License Costs
Varies by location:
- Some cities: $50-$100/year
- Some cities: $500+/year
- Some areas: No license required
Check your city/county: Requirements and costs vary
How to Get Business License
Process:
- Contact city/county business office
- Apply for license
- Pay fee
- Renew annually (usually)
Action: Check if required in your area
Try the tool
Local Tax Rates
Understanding the rates:
City Tax Rates
Vary dramatically:
- New York City: Up to 3.876%
- Philadelphia: 3.87%
- Washington DC: 4% to 10.75%
- Most cities: 0% (no city income tax)
Check your city: Rates vary
Combined Rates
If you're in high-tax area:
- Federal: 22-37%
- State: 0-13.3%
- City: 0-4%
- Total: 25-50%+ (depending on location and income)
Example: High earner in NYC
- Federal: 37%
- NY state: 10.9%
- NYC: 3.876%
- Total: ~51% (very high)
How to Determine Your Obligations
Here's your process:
Step 1: Check Your City
Research:
- Does your city have income tax?
- What's the rate?
- What are the filing requirements?
How: City website, tax department, or tax professional
Step 2: Check Your County
Research:
- Does your county have income tax?
- What are the requirements?
How: County website or tax professional
Step 3: Check Business License Requirements
Research:
- Do you need a business license?
- What's the cost?
- How to apply?
How: City/county business office
Step 4: File and Pay
If required:
- File local tax returns
- Pay local taxes
- Renew business licenses
Action: Comply with all local requirements
Real Examples and Scenarios
Let's work through scenarios:
Example 1: No Local Taxes
Scenario: Freelancer in Austin, Texas
Local taxes: $0 (no city or county income tax) Business license: May be required (check city)
Total local burden: Minimal (just business license if required)
Example 2: City Tax
Scenario: Freelancer in Philadelphia
City income tax: 3.87% Business license: Required
On $60,000 income:
- City tax: ~$2,000
- Business license: ~$100
- Total local: ~$2,100
Example 3: City + County Tax
Scenario: Freelancer in area with both city and county taxes
City tax: 2% County tax: 1%
On $60,000 income:
- City tax: ~$1,200
- County tax: ~$600
- Total local: ~$1,800
Common Mistakes to Avoid
Learn from others' mistakes:
Mistake #1: Not Knowing About Local Taxes
The problem: You don't know your city/county has income tax, don't file
The solution: Research local tax requirements (city, county websites)
Mistake #2: Not Getting Business License
The problem: You operate without required business license
The solution: Check requirements, get license if required
Mistake #3: Not Filing Local Returns
The problem: You file federal and state but forget local
The solution: File all required returns (federal, state, local)
Frequently Asked Questions
Do All Cities Have Income Tax?
No. Most cities don't have income tax. Only certain cities do (NYC, Philadelphia, DC, etc.).
How Do I Know If My City Taxes Income?
Research: Check city website, tax department, or consult tax professional.
Do I Need a Business License?
Depends on location. Many cities require business licenses, even for home-based businesses. Check your city/county requirements.
How Much Are Local Taxes?
Varies dramatically:
- Most areas: $0 (no local income tax)
- Some cities: 1-4% of income
- Business licenses: $50-$500+/year
Bottom Line: Your Local Tax Plan
Local taxes can add to your burden. Here's your plan:
Immediate Actions
- Research local taxes (city, county websites)
- Check business license requirements (city/county business office)
- Factor into tax planning (add local taxes to your savings percentage)
- File local returns (if required, by local deadlines)
Ongoing Actions
- Stay compliant (file local returns, renew licenses)
- Track local requirements (deadlines, rates, etc.)
- Factor into planning (local taxes are part of total burden)
Key Takeaways
✅ Local taxes vary by location (some cities/counties tax, most don't)
✅ City income taxes can add 1-4% to your total tax rate
✅ Business licenses may be required (even for home-based businesses)
✅ Research your location (check city/county requirements)
✅ File local returns (if required, separate from federal/state)
✅ Factor into planning (local taxes are part of total tax burden)
Final Thought
Local taxes are often overlooked but can add significantly to your tax burden in certain cities. The key is researching your local requirements, understanding what taxes apply to you, and filing and paying when required. Don't forget local taxes—they can add thousands to your tax bill in high-tax cities. Factor them into your planning from the start, and you'll avoid surprises.
