State Income Taxes

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 July 2022, nine 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 Colorado, Kentucky, Illinois, Indiana, Massachusetts, Michigan, North Carolina, Pennsylvania and Utah. Three more states — Georgia, Iowa and Mississippi — are slated to phase out their current tax brackets in favor of flat individual income tax rates in the coming years.

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 states with the highest flat tax rates on individual income are Kentucky and Massachusetts, which both collect a 5% tax on their citizens’ income. North Carolina is next with a 4.99% flat individual income tax and Illinois and Utah tie for third with their 4.95% flat individual income tax rate.

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 5% 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, Pennsylvania levies taxes at the lowest rate of 3.07%. Indiana taxes individual income at the second lowest rate of 3.23%. In third place is Michigan with a 4.25% 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%.

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.

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.