While most small businesses must pay state and federal income taxes, in some municipalities, they may also have to pay local income taxes too.
More than 2,000 local governments impose some sort of income, wage or occupational tax. Small business owners, even home-based business owners, may end up paying these taxes on their income and may be required to withhold taxes on the income of any employees they may have as well.
Also, even if you don’t live in a community, you may still have to pay its local occupational or wage tax if you do business there.
Complying with local income tax law is important, as non-compliance may result in penalties and may impact your business license. To find out whether you need to pay local income tax, a wage tax or occupational tax, contact your local municipal government. They can help you find the forms necessary to calculate and pay your local income, wage or occupational tax obligation.
As with your state and federal income tax forms, you’ll likely want to get a tax professional to help you with your local income tax, as there may be deductions that you’re entitled to that a qualified professional can point you to.