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Does My State Have an Income Tax?

By Selena Maranjian - Apr 7, 2016 at 11:03AM

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Most states have an income tax, while a few states don't. It might not be as bad as you think, though.


Like most states, California imposes a state income tax. It ranges from 1% to more than 12%. Image: Pixabay

It can feel annoying enough when we face big tax bills from the federal government, but many Americans also find their income taxed by the states in which they live. If someone else prepares your tax returns each year or you're somehow just not very attuned to taxes, you might wonder, "Does my state have an income tax?" You might also occasionally toy with the idea of moving elsewhere, and might wonder which states will tax your income.

Let's answer those questions. In a nutshell, most states do tax your earnings, to some degree. At the time of this writing, only seven  states levied no income tax:

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

Florida has no state income tax. Photo: Pixabay

Two other states, New Hampshire and Tennessee, do tax income, but in a more limited way. They only consider interest and dividend income taxable, not earnings from work or other income.

Note that you can't try to get out of state income taxes by living in a no-tax state and working in a state that taxes income. For example, if you live in Georgia, which does tax income and work across the border in no-income-tax Florida, you'd likely still need to report that Florida income on your Georgia tax return (as well as on your federal tax return, of course). If you live in Florida and work in Georgia, you will probably need to file a state tax return for Georgia. Living and/or working in multiple states can get complicated, when it comes to taxes. It can be helpful to tap the services of a tax professional -- or at least to use tax-prep software that can walk you through the reporting process.

The big picture
Before you start packing up to move from a with-income-tax state to a no-income-tax state, pause to consider the big picture. A state taxing income might still not be so bad. After all, the tax rates vary widely. Here, for example, are the 10 states with the highest top income tax rates, per data from the Federation of Tax Administrators.

State

Income Tax Rate As Low As ...

... And As High As ...

California

1%

12.3%*

Oregon

5%

9.9%

Minnesota

5.35%

9.85%

Iowa

0.36%

8.98%

New Jersey

1.4%

8.97%

Vermont

3.55%

8.95%

District of Columbia

4%

8.95%

New York

4%

8.82%

Hawaii

1.4%

8.25%

Maine

5.8%

7.15%

Source:TaxAdmin.org,
*California adds a 1% tax on income above $1 million.

Maine has a relatively high top tax rate and a relatively high low one, too. Photo: Pixabay.

Don't immediately vilify the top states, though. California's top rate is extremely high, but its lowest rate is almost the lowest in the whole table. Maine is at the bottom of the list, but its lowest rate is the highest minimum in the table. How much you will pay in any state depends heavily on your income level, plus any available exemptions, deductions, credits, and so on.

Keep in mind, too, that income taxes are not the only state or local taxes you can face. Very often, a state with a low income tax will sport significant property taxes and/or sales taxes. After all, they still need revenue and if they're not getting it from one place, they'll get it elsewhere. Remember, too, that taxes are applied toward providing services for residents. Some areas with very low taxes might also be somewhat skimpy in the services department.

Still, as you ponder where you live or might want to live, having an idea of income tax rates and other tax rates is a fine place to start.

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