State Income Taxes
Residents of certain states must pay annual income taxes to their state and to the federal government. Each state calculates and collects individual income taxes differently. Most states use progressive tax brackets like the federal government, but some levy taxes based on a single flat rate.
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- Updated: February 22, 2023
- 4 min read time
- This page features 6 Cited Research Articles
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Of America’s 50 states, 43 require their residents to pay state income taxes in addition to the federal income tax collected annually by the Internal Revenue Service (IRS). Each state has its own income tax rules.
Most states with income taxes use progressive tax brackets similar to the federal income tax system. However, most states have fewer brackets than those defined by the federal government.
As of February 2023, 11 states have a flat tax, meaning all income in that state is taxed at the same rate. The states with a flat income tax are Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Michigan, Mississippi, North Carolina, Pennsylvania and Utah.
Which States Have the Highest Income Taxes?
Among states using progressive income tax systems, California has the highest marginal tax rate in the country with top rates maxing out at 13.3%. In second place is Hawaii, which has a top marginal income tax rate of 11%. The state with the third highest income taxes is New York, taxing its top earners at 10.9%.
The state with the highest flat tax rate on individual income is Idaho, which collects a 5.8% tax on its citizens’ income. Mississippi is next with a 5% flat individual income tax and Illinois is third with a 4.95% flat individual income tax rate.
Which States Have the Lowest Income Taxes?
Seven states do not tax individual income at all. These states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming — therefore have the lowest income tax rates in the nation at 0%.
Two states tax income in other ways: New Hampshire collects its 4% tax on dividends and interest income only, while Washington imposes a 7% tax on capital gains income only.
Of the states collecting a flat individual income tax, Arizona levies taxes at the lowest rate of 2.5%. Pennsylvania taxes individual income at the second lowest rate of 3.07%. In third place is Indiana with a 3.15% flat income tax rate.
States that use progressive tax brackets tend to have higher top tax rates than the flat tax states, but there are a few exceptions. North Dakota has the lowest progressive income tax rates in the country with a max of 2.90%. The highest bracket of Ohio’s tax system has only a 3.99% tax rate, making it the second lowest income tax rate among states using tax brackets. In third place is Louisiana, with a top marginal tax rate of 4.25%.
Which States Have Income Tax Exemptions?
Many states that collect individual income taxes allow for personal exemptions, meaning a certain amount can be claimed as a deduction to your total taxable income. Personal exemptions help to ensure that poor households have less income tax liability or even no income tax liability at all. These exemptions also tie income tax liability to family size.
Certain states allow you to claim personal income tax exemptions for individuals, couples and/or dependents. Each state sets its own exemption amounts for these categories. Some states tie the exemptions to the federal tax code, while others set their own standards.
|State||Single Exemption||Couple Exemption||Dependent Exemption|
Some states provide income tax relief in the form of tax credits. Tax credits differ from personal exemptions since a tax credit directly reduces your tax liability as opposed to exempting a portion of your income from taxation.
Nine states offer tax credits for individuals, couples and/or dependents.
|State||Single Tax Credit||Couple Tax Credit||Dependent Tax Credit|
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6 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- Tax Foundation. (2023, February 21). State Individual Income Tax Rates and Brackets for 2023. Retrieved from https://taxfoundation.org/state-income-tax-rates-2023/
- Tax Policy Center. (2020, May). What Are Personal Exemptions? Retrieved from https://www.taxpolicycenter.org/briefing-book/what-are-personal-exemptions
- Tax Policy Center. (2020, May). What Are Tax Credits and How Do They Differ From Tax Deductions? Retrieved from https://www.taxpolicycenter.org/briefing-book/what-are-tax-credits-and-how-do-they-differ-tax-deductions
- USA.gov. (n.d.). State and Local Taxes. Retrieved from https://www.usa.gov/state-taxes
- Vermeer, T. & Loughead, K. (2022, February 15). State Individual Income Tax Rates and Brackets for 2022. Retrieved from https://taxfoundation.org/state-income-tax-rates-2022/
- Walczak, J. (2022, April 26). States Inaugurate a Flat Tax Revolution. Retrieved from https://taxfoundation.org/flat-tax-state-income-tax-reform/
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