State Income Tax Rates

This article is not intended to provide tax, legal, or investment advice. This material has been prepared for informational purposes only, and should not be  relied upon for tax, legal, or investment purposes. These topics are complex and constantly changing. The information presented here may be incomplete or out of date. Be sure to consult a relevant professional.

All U.S. taxpayers must pay federal income taxes. However, the U.S. also imposes state income tax rates, and typically, they are different in each location. Some regions have no income taxes, and others have the highest or lowest tax rates.

Most regions that impose additional taxation on revenue collect money from individual taxpayers and businesses. There are 44 states in the U.S. that require businesses to pay income taxes.

Like federal taxes, businesses and taxpayers must follow strict schedules and avoid missing deadlines. Local governments impose penalties on taxpayers who fail to pay by the deadline. Moreover, if authorities believe a taxpayer purposely skipped paying taxes, they will penalize this taxpayer. In some cases, taxpayers even end up in jail.

Keep reading our article to learn more about the topic. You will find a table of all state income tax rates that includes how much a taxpayer must pay according to their revenue, filing status, and dependents number.

Understanding State Income Tax Rates

State income tax rate is a level of direct tax that local authorities collect on revenue taxpayers earn in or from the region. This could mean all revenue earned anywhere. Similar to the federal system, it is self-assessed. It means taxpayers must prepare and file returns by themselves.

Taxation laws vary from location to location. Even due times are different, especially when it comes to businesses. Typically, individuals must file their income return by April 15, when they also file federal taxes.

Some regions don’t have additional taxation systems, so taxpayers only have to file federal returns. The list of regions without additional tax rates can be accessed further in the article.

Key facts:

• Local laws and rates vary significantly from region to region.
• In the U.S., there are 44 states (and Washington, D.C.) that have additional taxation on earning. However, New Hampshire has additional taxation only on dividends and interest.
• Taxpayers must file a return form for every region they earn revenue (except for regions with no additional taxation systems). However, only the state in which a taxpayer lives can collect all your taxes.

How Do State Income Tax Rates Work?

Typically, the U.S. regions have different approaches to collecting taxes on citizens’ earnings. These approaches can be divided into three big categories:

• Flat tax. The state collects payments at the same  rate, no matter the revenue size.
• No tax. Only eight regions so far impose no additional tax rates.
• Progressive system. The approach works just like the federal system. Regions have different brackets for income depending on revenue size.

Typically, people live and work in the same location. But in some cases, a person may live in one state but work in another (or in a few locations). In that case, the person has to file return forms to all regions where they earn money.

States With The Flat Income Taxation

Ten regions in the U.S. have a flat state income tax rate:

• Colorado – 4.55%
• Illinois – 4.95%
• Indiana – 3.23%
• Kentucky – 5%
• Massachusetts – 5%
• Michigan – 4.25%
• New Hampshire – 5% (but only on interest and dividends)
• North Carolina – 5.25%
• Pennsylvania – 3.07%
• Utah – 4.95%

As mentioned, a flat system means that no matter how much a person earns, they pay the same percentage.

States Without Income Tax

Currently, there are eight states without an additional taxation system:

• Alaska.
• Florida.
• Nevada.
• South Dakota.
• Tennessee.
• Texas.
• Washington.
• Wyoming.

New Hampshire plans to join the list by 2027 when it finishes phasing out taxation on unearned revenue. Currently, New Hampshire doesn’t tax earned wages.

States With Progressive Tax Rate System

Most regions in the U.S. and the District of Columbia impose taxes on revenue by using a progressive structure, similar to the federal system. The more revenue a business or individual taxpayer earns, the more they pay on their corporate or personal revenue.

Note: state income tax rates are always lower than federal ones. Typically, several brackets range from 1% to 10%. It’s also worth mentioning that some regions take 0% out of the first several thousand of income.

The highest tax rates range from 13%-14%. Typically, states impose high rates on property, sales, utility, fuel taxes.

Take a look at our “A Summary Of All States Tax Rates In All U.S. Regions For Individuals” section of the article to learn more about all taxation mechanisms, including progressive and flat systems.

States With Highest State Income Tax Rates

Typically, it depends on how much a taxpayer or business earns. If taxpayers earn revenue in a region without an additional taxation system, they don’t have to pay. If taxation is flat, they pay the same percentage regardless of the revenue.

But regions with progressive tax rates often impose higher payments. In 2022, the highest one is in California, but only depending on the revenue size. If a taxpayer makes $1 million or more, they pay 13.30%.

Living And Working In Different Regions

As mentioned, some taxpayers may live in one region but work in another one, or even in several locations. For example, actors, singers, lawyers often work in different locations. They earn wages or salaries in different regions, so how do they pay taxes on income?

Suppose a taxpayer is living in Nevada but works in Montana, Utah, Arizona, California, and Nevada. This taxpayer is required to pay in all of these locations (except for Nevada since it has no additional taxation) according to their rules.

In Utah, they must pay a flat 4.95%. In Montana, Arizona, and California, the rate depends on the revenue size, filing status, and other factors. For example, if this taxpayer earns more than 18,800, they must pay 6.75%.

Note: the tax home is the general area of the taxpayer’s main place of business. If the taxpayer mainly works in Nevada, their tax home would be Nevada. The IRS claims that to determine the main place of business, a person must determine the length of time they spend in the location and the degree of business activity occurring in that location.

State Income Tax Rates and Businesses

Some regions collect income taxes on corporations, partnerships, and trusts or estates. Typically, these regions impose lower corporate taxes and special exemptions to create a better environment for businesses, thus attracting companies to locate in these regions and pay a portion of their profits.

States cannot impose an income tax on the U.S. or foreign businesses. An exemption occurs when the business has a substantial connection, called a nexus. Typically, requirements for nexus include:

• Earning income in the region.
• Owning or renting property.
• Hiring local citizens.
• Having property or capital assets.

Even if having this connection, businesses must pay in those states located or registered. More about corporate state income tax rates are below in the table.

State Corporate Taxes and Brackets

Take a look at the state corporate taxes table to figure out how much a business should pay in taxes. For example, if a business owner operates a company in Illinois and earns any income, the business must pay 9.5%.

But if a business operates in Nebraska, the situation is different depending on the income. If a business earns income up to $100,000, the owner must pay 5.58% of income to Nebraska. But if the company makes an income on sales or services higher than $100,000, it should pay 7.81%.

Some regions have one bracket, while others have several brackets. The overall payment size depends on the revenue.

Penalties for Tax Evasion

All U.S. taxpayers understand that not filing income returns to the IRS will lead to harsh penalties. But what about state taxes? The key takeaway here is that local fines can be as severe as those imposed by the IRS.

Moreover, if the local authority believes you didn’t file taxes on purpose, you may be accused of a fraudulent scheme which will inevitably lead to a prosecution for a crime. In this case, a taxpayer may even end up in jail.

Typically, local governments accuse most taxpayers of missing the deadline or not filing forms properly. As a result, they penalize taxpayers, set interest fees and other fees in addition to the amount of tax due.

Note: the state charges your account monthly, so the interest increases, just as your fine. The longer a taxpayer waits to file income returns and pay what they owe, the more they’ll have to pay.

Some regions may also lien on taxpayers’ property, freeze their assets, garnish wages, and intercept a federal tax reimbursement if too much time passes and a taxpayer still didn’t file taxes.

So, how do you avoid penalties for missing the deadline for filing taxes improperly? The best way is to hire a professional accountant!

It’s a perfect solution whether you are an individual taxpayer or own a business. Consider working with an accounting company that offers the services of professional CPAs who take care of calculating and even filing taxes on their client’s behalf.

A Summary Of All States Tax Rates In U.S. Regions For Individuals

If you are interested in checking and comparing all U.S regions, check this tax rates table. It summarizes all locations and all brackets for 2022 (tax season year 2021).

This is the finalized tax rates table with all filing statuses. Take a look at your region to have a better understanding of how much you must pay depending on different factors.

Final Thoughts

Currently, the U.S has 44 states with additional taxation systems. It’s critical to understand the rules of a region where you live and work. When taxpayers are trying to avoid paying federal taxes, the IRS will eventually intervene. But this is also the case with local authorities.

Not filing and paying taxes properly in a region where you live and work may lead to harsh penalties, and even prison if accused and convicted of tax evasion. Both individual taxpayers and businesses are at risk. That’s why it’s recommended to ask for professional help. A certified accountant can help you with tax rates so you won’t get into trouble!