A Look at Local Income Taxes

Filing season is ramping up, as most of us are getting ready to file our state and federal income taxes.

But in nearly a third of U.S. states, taxpayers pay some sort of local income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. too. Levied in thousands of cities, counties, school districts, and other localities, local income taxes are often used to either lower other taxes (like property taxes) or raise more revenue for local services.

While they may make sense on paper, local income taxes come with more challenges than other local revenue sources. Janelle Fritts, policy analyst with Tax Foundation’s Center for State Tax Policy, walks Jesse through the origin of local income taxes and the trade-offs lawmakers need to keep in mind when considering them.