The Local Taxes Nobody Warns Retirees About

State income tax gets all the attention. But in many parts of the country there's a second, local layer of taxes that a state ranking never shows, and it varies from one city or county to the next.

Local income taxes

Thousands of local jurisdictions in the U.S. levy their own income tax, concentrated in a handful of states. Ohio, Pennsylvania, Maryland, Indiana, Kentucky, Michigan, and New York (New York City and Yonkers) are the main ones, along with some cities in Alabama, Missouri (Kansas City and St. Louis), Oregon (Portland-area transit and preschool taxes), and elsewhere.

What matters for retirees is what income the local tax reaches. Many Ohio and Pennsylvania municipalities tax only earned income, not pensions or Social Security, so a retiree may owe little. Maryland's county "piggyback" taxes, by contrast, apply to the same income the state taxes. Indiana's county taxes follow state taxable income. New York City taxes residents on nearly all income.

So the same state can contain a city with a 2% or higher local income tax and a township with none, and whether that touches your retirement income depends on the ordinance.

Local sales taxes

Most states allow counties, cities, and special districts to add sales tax on top of the state rate. Combined rates can differ by several percentage points across a state line you'd never notice on a map. Some states with no income tax rely more heavily on sales tax, and the local add-on is part of that. For a retiree spending $40,000 a year on taxable goods, one percentage point is $400 a year.

What's taxed matters too: groceries, prescription drugs, and clothing are exempt in some states and taxed in others, and a few states let localities tax groceries even when the state doesn't.

Local levies and fees

Beyond income and sales taxes, watch for:

• Special district assessments (fire, library, water, mosquito control, community development districts) added to the property tax bill.
• Occupational or per-capita taxes in some Pennsylvania and Ohio localities.
• Utility taxes and franchise fees on electric, gas, water, and telecom bills, set by the city.
• Vehicle taxes, which in some states are local personal property taxes on cars, assessed annually.
• Tourist or lodging taxes if you plan to rent out a home.

How to check a county

1. Look up the city or county on the state revenue department's local tax page (most states publish local income and sales tax rates by jurisdiction).
2. If there's a local income tax, read what income it applies to: earned income only, or pensions and retirement withdrawals too.
3. Find the combined state plus local sales tax rate for the specific address, and check grocery and drug treatment.
4. Pull a sample property tax bill for the county and read every line below the county levy.
5. Check whether the state assesses personal property tax on vehicles.

The bottom line

Local taxes are small individually and easy to miss, but together they can move a retirement budget by a few thousand dollars a year, and they're set by the city and county. They belong on the same comparison sheet as property tax and insurance.

Look up the median property tax bill for any county →

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Educational information, not tax advice. Local rates and rules change; confirm with the state revenue department and the locality.