State Income Tax Overview: Complete Guide by State
Comprehensive guide to state income taxes across the United States. Learn which states have no income tax, how state tax rates compare, filing requirements, and strategies to minimize your overall tax burden.
In addition to federal income tax, most U.S. states levy their own income taxes. State tax rates, brackets, and rules vary dramatically - from states with no income tax at all to states with rates exceeding 13%. Understanding your state's tax system is essential for comprehensive tax planning and can even influence decisions about where to live or work.
States With No Income Tax
Nine states don't tax wages or salaries at all, making them attractive to high earners and retirees. However, these states often have higher sales taxes or property taxes to compensate.
States Without Income Tax (2024):
- • Alaska
- • Florida
- • Nevada
- • New Hampshire (taxes dividends and interest only, ending 2024)
- • South Dakota
- • Tennessee
- • Texas
- • Washington
- • Wyoming
Note on New Hampshire: NH is phasing out its tax on interest and dividends - the rate dropped to 3% in 2023 and will be eliminated entirely for tax year 2024 and beyond.
While living in a no-income-tax state can save money, consider the total tax burden including sales tax, property tax, and cost of living. Some no-income-tax states have among the highest property or sales tax rates.
How State Income Taxes Work
Progressive vs. Flat Tax States
States use different tax structures:
- Progressive Tax: Tax rate increases with income (like federal taxes). Most states use this system.
- Flat Tax: Single tax rate applies to all taxable income. States include Colorado (4.40%), Illinois (4.95%), Indiana (3.05%), Kentucky (4.5%), Michigan (4.25%), North Carolina (4.5%), Pennsylvania (3.07%), and Utah (4.65%).
Highest and Lowest Tax States
Top marginal state income tax rates vary widely. Check your state's revenue or taxation department website for current rates and brackets.
States with Highest Tax Rates (2024):
- • California: 13.3% (highest in nation)
- • Hawaii: 11%
- • New York: 10.9%
- • New Jersey: 10.75%
- • Oregon: 9.9%
- • Minnesota: 9.85%
For comprehensive state tax information, visit the Federation of Tax Administrators directory of state tax agencies.
State Tax Filing Requirements
Who Must File
If you're a resident of a state with income tax, you typically must file if:
- Your income exceeds the state's filing threshold (varies by state)
- You're required to file a federal return
- You had state income tax withheld and want a refund
- You owe state estimated taxes
State Filing Deadlines
Most states align with the federal tax deadline (April 15), but some have different deadlines:
- Delaware: April 30
- Iowa: April 30
- Louisiana: May 15
- Virginia: May 1
Check your state's revenue department website for specific deadlines and extension procedures.
Multi-State Tax Situations
Working in a Different State
If you live in one state but work in another, you may need to file tax returns in both states. However, most states offer a credit for taxes paid to other states to avoid double taxation.
Common Scenario:
You live in New Jersey but work in New York City. You'll file a New York non-resident return (taxed on NY income only) and a New Jersey resident return (taxed on all income). NJ will give you a credit for taxes paid to NY, reducing or eliminating double taxation.
Reciprocal Agreements
Some states have reciprocal agreements allowing residents who work across state lines to pay income tax only to their home state. States with such agreements include:
- Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin (various pairings)
- Maryland and Virginia (limited agreement)
- Pennsylvania with Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia
- Arizona and California (for specific border workers)
If working across state lines, file the appropriate exemption form with your employer to avoid withholding in the work state.
Other State Taxes to Consider
Sales Tax
All states except Alaska, Delaware, Montana, New Hampshire, and Oregon have state sales taxes. Combined state and local sales tax rates range from 0% to over 10%. The Sales Tax Institute provides detailed rate information.
Property Tax
All states levy property taxes, but rates vary significantly. New Jersey, Illinois, and New Hampshire have the highest effective property tax rates, while Hawaii, Alabama, and Louisiana have the lowest. Property taxes are deductible on federal returns (subject to $10,000 SALT cap).
Estate and Inheritance Taxes
Several states impose estate or inheritance taxes in addition to federal estate tax:
- Estate Tax States: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, District of Columbia
- Inheritance Tax States: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania
Estate planning strategies may be needed if you live in these states and have significant assets.
Tax Planning Strategies
Residency Considerations
State residency rules determine where you owe income tax. Generally, you're a resident if your state is your "domicile" (permanent home) or you spend more than 183 days there. Some high-tax states aggressively pursue residents who claim to have moved to low-tax states.
Residency Audits: States like California and New York closely scrutinize residency changes, especially for high earners. If claiming you've moved to a no-tax state, maintain evidence: sell your old home, register to vote in new state, get driver's license, spend majority of time in new state, move valuable possessions, etc.
Retirement Location Planning
Many retirees move to low-tax or no-tax states. Consider:
- States that don't tax Social Security benefits (37 states + DC)
- States that don't tax pension income or offer significant exemptions
- Overall tax burden including sales, property, and estate taxes
- Cost of living and access to services
Resources for State Tax Information
- Federation of Tax Administrators - Links to all state tax agencies
- Tax Foundation - State tax research and comparisons
- AARP State Tax Guide - Retirement tax information by state
Navigate State Taxes Strategically
State taxes can significantly impact your overall tax burden. Understanding your state's tax system and planning accordingly - whether through deductions, credits, or even relocation - can save you thousands of dollars. Our AI USA Tax Advisor can help you understand your state's specific tax rules and how they interact with federal taxes.
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