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Most states have taxes with rates that get progressively higher as your income increases.
Rachel Mendelson/Insider
Many of the 50 states and Washington, DC collect some sort of personal income tax.
Nine states either don’t levy income tax at all or only collect it on interest and dividend income from investments.
States that do assess income taxes either use a flat rate or a graduated tax system.
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While people across the United States pay federal income taxes, depending on where you live, you may also be subject to state income taxes.
You won’t have to pay any state income tax in Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming. Until recently, Tennessee only taxed income from investment earnings on bonds and stock, not income earned at a job. But that tax was repealed starting in the 2021 tax year. New Hampshire doesn’t tax W-2 income, and its levy on investment income is being phased out in 1 percentage point increments each year until it’s fully repealed for tax years after 2026.
How states tax their residents’ incomes
Among the states that do assess personal income taxes, the rates vary widely from one to the next. And there are two different ways to impose them: flat tax rates and graduated (also known as progressive) tax rates.
States with a flat tax rate collect the same percentage of income from everyone, regardless of how much they earn. States with a graduated tax rate collect progressively higher portions of residents’ income as their earnings level increases.
The states with the highest income tax rates all have graduated tax rates: California (13.30% top marginal tax rate), Hawaii (11% top marginal tax rate), New York (10.9% top marginal tax rate). The states with the lowest income tax rates are a mix of flat tax and graduated tax rates: North Dakota (2.9% top marginal tax rate), Pennsylvania (3.07% flat tax rate), and Indiana (3.23% flat tax rate).
Taxpayers who itemize their deductions can deduct state income taxes on their federal tax returns. The Tax Cuts and Jobs Act of 2017 set a deduction limit of $10,000 ($5,000 if your filing status is married filing jointly) for state and local taxes, including income, sales, and property taxes.
Note: The deduction for state and local taxes is commonly referred to as SALT.
States with graduated tax rates
Graduated, or progressive, tax rates use a series of income thresholds called brackets to assess taxes.
“Progressive tax systems are more common and apply a higher tax rate to higher earners,” says Tyler Davis, a CPA with Simplify LLC, which provides free resources for small business owners. “The more you make, the higher your tax rate is.”
Here’s a simple example of how it would work in Alabama, where there are three tax brackets that start at $0, $500, and $3,000 of income, taxed at 2%, 4%, and 5%, respectively:
Under that system, someone earning $10,000 a year would pay $460 altogether in state taxes. The first $500 would be taxed at 2%, for a total of $10. The next $2,500 gets taxed at 4%, for a total of $100. And the remaining $7,000 is taxed at 5%, for a total of $350. Each chunk of income is taxed at progressively higher rates as the total income climbs higher up the scale.
The argument for graduated tax rates is that they’re tied to your income so those who earn more pay more. A flat tax, on the other hand, can have a disproportionate impact on low-income taxpayers.
2022 rates for states with graduated income tax systems
StateTax ratesBracketsIncome bracket starting points
(single filer)Alabama2%-5%3$0-$3,000Arizona2.59%-4.5%4$0-$166,843Arkansas2%-5.5%3$0-$8,500California1%-13.3%10$0-$1,000,000Connecticut3%-6.99%7$0-$500,000Delaware2.2%-6.6%6$2,000-$60,000Georgia1%-5.75%6$0-$7,000Hawaii1.4%-11%12$0-$200,000Idaho1%-6%4$0-$7,939Iowa0.33%-8.53%9$0-$78,435Kansas3.1%-5.7%3$0-$30,000Louisiana1.85%-4.25%3$0-$50,000Maine5.8%-7.15%3$0-$54,450Maryland2%-5.75%8$0-$250,000Minnesota5.35%-9.85%4$0-$171,220Mississippi4%-5%2$5,000-$10,000Missouri1.5%-5.4%9$108-$8,704Montana1%-6.75%7$0-$18,800Nebraska2.46%-6.84%4$0-$33,180New Jersey1.4%-10.75%7$0-$1,000,000New Mexico1.7%-5.9%5$0-$210,000New York4%-10.9%9$0-$25,000,000North Dakota1.1%-2.9%5$0-$445,000Ohio2.765%-3.99%4$25,000-$110,650Oklahoma0.25%-4.75%6$0-$7,200Oregon4.75%-9.9%4$0-$125,000Rhode Island3.75%-5.99%3$0-$155,050S. Carolina0%-7%6$0-$16,040Vermont3.35%-8.75%4$0-$206,950Virginia2%-5.75%4$0-$17,000West Virginia3%-6.5%5$0-$60,000Wisconsin3.54%-7.65%4$0-$280,950Washington, DC4%-10.75%7$0-$1,000,000
Source: Tax Foundation
Note: Connecticut and New York practice tax-benefit recapture, where some high earners pay the top tax rate on all of their eligible income.
States with flat tax rates
A flat tax collects the same percentage of income from all taxpayers, regardless of their income level.
For example, someone who lives in Colorado is going to pay 4.55% of their taxable income in taxes to the state — whether it’s someone earning $100,000 who pays $4,550 or someone earning $10,000 who pays $455.
States tend to have flat tax rates because they’re believed to be simpler to administer and regulate, according to Davis. “These states often allow fewer deductions and write-offs than states with a progressive system,” he says.
2022 rates for states with flat income tax systems
StateTax rateColorado4.55%Illinois4.95%Indiana3.23%Kentucky5%Massachusetts5%Michigan4.25%North Carolina4.99%Pennsylvania3.07%Utah4.95%
Source: Tax foundation
The bottom line
The rate you pay for state income tax will vary depending on where you live.
And while a handful of states don’t impose any income tax at all, they often make up the difference elsewhere, such as sales and property taxes.
Also, even though you’re handing over part of your paycheck to the state where you live, you may be able to deduct at least some of those taxes on your federal return. The Tax Cuts and Jobs Act of 2017 capped the amount of state and local taxes that can be deducted at a maximum of $10,000.