State Income Tax
A Progressive Tax, a Flat Tax, or None at All
State income tax rates receive relatively little attention compared with federal income taxes, but they can still put a large dent in your wallet. How large depends on the amount you earn, as well as where you live and work.
A state income tax is a tax on income earned in that state. It is similar to a federal income tax, but state income tax generally funds state budgets rather than the federal government.
State Income Tax Rates
States take approaches to taxing residents and workers.
No At All
The state doesn’t tax income on all American taxpayers.
Flat Tax
The state imposes a flat tax on all American taxpayers.
Same Rate
All income, dividends, and interest are taxed at the same rate.
Progressive Tax
People with higher taxable incomes pay higher taxes.
Who State Income Tax Work?
The state income tax brackets for tax year 2021 depends in part on residency and earned income.
If like most people, you live and work in the same state, you probably need to file only one state return each year. But if you moved to another state during the year, lived in one state but worked in another, or have, say, income-producing rental properties in multiple states, you might need to file more than one. And because the price of most tax software packages includes preparation and filing for only one state. Filing multiple state income tax returns often means paying extra. Seven states don’t have an income tax:
- Alaska
- Florida
- Nevada
- South Dakota
- Washington
- Texas & Wyoming
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States With Flat Income Tax Rates
Eleven states try to keep things simple by applying the same tax rate to most income. Of course, what counts as “income” depends on the state. In New Hampshire and Tennessee, for example, regular income is generally not subject to state tax, but a flat tax rate applies to dividends and interest income.
States With Progressive Tax Structures
Most states and the District of Columbia tax income much the way the federal government does: They tax higher levels of income at higher state income tax rates.
State income tax rates tend to be lower than federal tax rates. Many range between 1% and 10%. Some states tax as little as 0% on the first few thousand dollars of income.
High-tax states top out around 12%, and that’s often on top of property taxes, sales taxes, utility taxes, fuel taxes, and whatever the taxpayer must send to the federal government. State Income Tax can be processed with deductions and credits. Some of them are:
- Student Loan Deduction
- Dependent Care
- Adoption
- Charitable Donations
- Medical Expenses
- Mortgage Deduction
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