A Simple Overview of State Income Tax Rates
Taxes are confusing. There are many different types of taxes, including taxes on income, taxes on real property, taxes on goods and services (aka sales tax), and estate taxes. And this is different on the local, state, and federal levels. Combine this with the many different, competing goals for the government to collect these different taxes and you end up with a lot of confusion.
I know it may seem a bit overwhelming at first glance, which is why I am here to help. I am going to give you a simple overview of state income tax rates.
First I will go over the basics of state income taxes, including how tax brackets work, how a tax calculator could help you, and what to expect when waiting for your tax refund. Then I will go over the state income tax rates for all 50 states, plus the District of Columbia. Finally, I will end with some tips you can use to save money on your state income taxes.
Just like many things, income tax rates vary by state. The two main types of income tax rates are flat tax rate and progressive tax rate. We will divide our lists up into these two main categories, so that you know where your state stands.
All You Need to Know about Taxes and Related Terms
State Income Tax Basics
Before you learn about state income tax, it makes sense to learn about tax basics, including common tax definitions and related terms.
After taking a look at the basics, we can jump into personal income tax basics, which includes information on what really happens to your paycheck, what paperwork you will need to fill out, what to do about additional income, and tax deadlines (unless you file a tax extension because you need more time).
What does happen to your paycheck? You may wonder why you do not receive all of the money you earn. This is because everything you earn is called your gross income, but what you actually get is called your net income. This may seem frustrating, since you earned that money. But this money goes towards things like your retirement savings and health insurance premium, so it is actually important.
The W-4 Form
When filing your taxes, one of the most important forms for you is the W-4. Luckily, page 2 of the W-4 gives detailed step-by-step instructions on how to fill the form out. If you need additional help, then you can use the Tax Withholding Estimator on the IRS website. Go to the IRS website to see what other forms you may need to fill out when filing your taxes.
There are many options for dealing with additional, including:
- pay estimated taxes
- set up a special emergency fund account for taxes
- ask your employer to withhold additional taxes from each paycheck
Tax Brackets Explained
You will need to calculate your taxable income in order to determine which of the seven tax brackets you fit into. You can calculate your taxable income by adding your earned income and investment income and then subtracting any deductions and adjustments you may have.
Your taxable income will be counted differently depending on if you are single, head of household, married filing jointly or qualifying widow, or married filing separately. Because of these different categories, you should take a look at the different tax brackets.
For state income taxes, each state has a different number of tax brackets.
Tax Calculator
If you still need additional help estimating your income tax, then you can use a tax calculator. A couple of the most popular tax organizations that could offer you a tax calculator are TurboTax and H&R Block, both of which also give you the option to file tax online.
Tax Refund Expectations
You cannot always tell what your tax refund will look like, but there are ways to maximize your tax refund. Just a couple of examples are making sure you claim all of your deductions, claim all of your nonrefundable credits, are organized, and meet deadlines. Meeting your deadline also means not forgetting to file for a refund.
You can expect to receive your tax refund in less than 21 days. Sometimes delays may occur though, due to filing an incomplete return, filing late (or even filing early), offset of your refund to pay debt, computation errors on your tax return, or multiple other reasons. Because of this, it is important to be patient.
If you are waiting for your tax return, you can check the status of your tax return by going to the IRS website and utilizing their "Where's My Return?" tool.
It is extremely important to pay your state income taxes on time. The deadline for your taxes is April 15 by midnight. If this isn't already in your calendar, then put it in! As mentioned above, it is possible to file a tax extension if you need more time. If possible though, just file your taxes on time. If you can file early, even better. There can be a large cost for not filing on time, especially if you do not even request an extension. Don't risk a tax lien, wage levy, tax evasion charges, or a revoking of your passport. Just file on time!
States with a Flat Tax Rate
A flat tax rate is just what it sounds like: a flat rate that everyone must pay. This may be seen as fair because it is the same rate for everyone.
While this may seem more standardized -- since it is a flat rate, this can still differ from state to state. For instance, each state with a flat tax rate has its own definition of what counts as "income". While some states count regular income (taxable income) as "income", other states do not. Instead, they may only apply the income tax rate on dividends and interest income. Other states will use an adjusted gross income instead.
Here is a list of which states have a flat tax rate, along with their progressive tax rate:
| State | Flat Tax Rate |
|---|---|
| Arizona | 4.9% |
| Colorado | 4.4% |
| Illinois | 4.95% |
| Idaho | 5.8% |
| Indiana | 3.15% |
| Kentucky | 4.50% |
| Mississippi | 5% |
| Michigan | 4.25% |
| New Hampshire | 4.00% |
| North Carolina | 4.75% |
| Washington | 7.00% |
| Utah | 4.95% |
Of the eleven states listed above, New Hampshire and Tennessee are the only two states that apply the flat tax rate to only dividends and interest income.
States with a Progressive Tax Rate
A progressive tax rate is a tax rate that makes use of the tax brackets mentioned above. Some states have a progressive tax rate, which is determined based on how much they earn, rather than being the same across the board. This is how federal income tax is also done.
To give you an idea of what you can expect, I will use numbers for single filers. While many states will just double the income brackets for joint filers, it may be different, depending on which state you live in.
Here is a list of which states have a progressive tax rate, along with their tax rates, number of tax brackets, lowest tax bracket starting points, and highest tax bracket starting points:
States without State Income Tax
You may have noticed your state missing from one of the two categories above. This is because the following seven states have no state income tax:
Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming
While it may seem like residents of these states have it so much better, since they don't have any state income tax, it is only an illusion. Some of these states make up for this lack in state income tax revenue by having higher taxes in other areas, such as sales tax or property taxes.
Tips to Save Money on State Income Taxes
Here are some tax saving tips and tax insights to help you save more money:
Preparing everything you can in advance will help you save money on taxes. This is because it will be easier to take advantage of every possible deduction and credit if you are organized and have all of your papers in order. Make sure to collect all necessary documents, as well as last year's tax return, together in one place. Having last year's tax return at hand will help to make sure you don't forget to claim any deductions that you have claimed in the past.
If you want to save money on state income taxes, then you should look into tax management. This goes beyond standard organization. It also includes utilizing various tax experts and tax tools. By utilizing this extra assistance, you are working smarter rather than harder.
Using tax preparation services can save you some money on your taxes. It will cost you some money up front, but it could be worth it. They know what they are doing, and they know what kinds of things to look out for. Maybe they will bring additional deductions to your attention, which will save you money. If you don't have the time or concentration to figure out your taxes on your own, then hiring a tax expert could be worth the investment. There is also a lot of free tax help out there, so you may not even need to spend money on a tax professional. Check and see if there are free tax services in your area.
While tax preparation services can help you take advantage of deductions you may not have previously known about, filing your taxes on your own could end up saving you more money overall. It will take more time and effort to file your taxes on your own, but if you are able to do it on your own, it will be well worth the extra money you will save on not hiring tax preparation services or an accountant to help you.
It doesn't make sense to not take advantage of each deduction possible. If you are Here are a few examples of some deductions to keep in mind:
- claiming a dependent
- homeowner's tax break options
- medical finance expenses deduction
- gift tax (aka charitable donation)
Conclusion
Now that you can see what the state income tax rates are for each state, hopefully you have a better understanding of what to expect when filing your next taxes.
While it is easy to be a bit jealous of how low the state income tax rates are in other states -- not to mention the states with no state income taxes at all, it is important to remember that some states with lower state income tax rates have higher tax rates for other things, such as sales tax or property taxes. So don't be too quick to sell your house and move to one of the states with lower state income tax rates than the state you currently live in. You may be better off where you already are.
Educating yourself on how state income tax works, as well as what the state income tax rates are in your state is the first step to be successful when filing your taxes. But if you really want to save as much money as possible and get as large of a refund as possible, then use our tips above on saving money on taxes. Maybe we mentioned a couple of deductions you either hadn't heard of or didn't think of when filing your taxes.