Key Takeaways
- Most states levy an income tax on earnings, similar to the federal government.
- Ten states have a flat tax rate on incomes, meaning the same rate is applied to all income levels.
- Eight states do not impose an income tax at all, but still require residents to pay other taxes.
- Most states have a graduated tax rate system, with fewer tax brackets and lower rates than the federal government.
Introduction
Just like the federal government, states impose additional income taxes on your earnings if you have a sufficient connection to the state. Although each state has the authority to create its own system of imposing the tax, most jurisdictions use a similar structure as the federal government. However, a minority of states impose the income tax at a flat rate on all taxpayers or they don’t even charge the tax at all.
Flat tax rates
Just ten states have a flat tax rate on incomes. These include Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, New Hampshire, North Carolina, Pennsylvania and Utah. A flat tax, sometimes called a fair tax, levies the same rate on all income levels. In 2024 for example, the flat state income tax rates ranged from 2.5 percent in Arizona to 4.7 percent in Mississippi. This means that if you earn $100,000 in Arizona, you only pay $2,500 in state income tax. And if you earn $1 million, you still only pay 2.5 percent or $25,000 (although actual tax due can vary depending on certain deductions and credits).
States without an income tax
There are also eight states that don’t impose an income tax at all. These are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. The lack of an income tax is not to say that the citizens of these states don’t pay any tax to the state—residents in each of these states have to pay a variety of other common state taxes including a sales tax, a gasoline tax, a cigarette tax and property taxes. According to data compiled by the Tax Foundation, however, residents of the states with no income tax consistently bear a lower total per capita tax burden than those who live in states that impose an income tax.
TurboTax Tip:
Taxpayers can claim a deduction up to $10,000 per year on their federal tax return for state income taxes if they itemize deductions.
Graduated tax rates
The majority of the remaining 36 states and the District of Columbia have an income tax framework that resembles the federal government's tax structure. This requires that your income be taxed in various brackets at different rates that increase as your annual income increases. Generally, though, state income tax laws are more simplified than the federal tax code, with fewer tax brackets and lower tax rates. Some states even have tax laws that automatically adjust tax brackets and rates for inflation.
Deducting state income taxes
If you are one of the many taxpayers who pay state income tax, the IRS allows you to claim a deduction on your federal tax return for them. A deduction for state income tax is only available if you itemize deductions on your federal return.
To determine if you should itemize your deductions, you total up your annual deductible expenses, including your state income tax expense, to be greater than the Standard Deduction amount for your filing status. In 2024 for example, a single taxpayer can claim a Standard Deduction of $14,600. Therefore, if you pay more than $14,600 in state income tax and other itemized deductions, then you might want to itemize your deductions. If not, then you would likely be better off taking the Standard Deduction.
Beginning in 2018, state and local tax deductions, including state income taxes, are limited to $10,000 per year. For tax years prior to 2018, the deduction is unlimited, although claiming a significant amount of state and local tax deductions could make you subject to the Alternative Minimum Tax.
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