State income tax is a tax on your wages, investment earnings, and other income that your state government collects in addition to federal income tax

Most states charge you a percentage of your income each year. The rate and rules vary by state — some states have no income tax at all, some tax only investment income, and others tax wages at rates ranging from under 1% to over 13%. Your employer usually withholds state income tax from your paycheck the same way they withhold federal tax, and you report what you owe on a state tax return each April (or whenever your state's important date falls).

State income tax funds schools, roads, police, courts, and other services your state provides. Unlike federal income tax, which goes to the IRS, state income tax goes to your state's department of revenue or taxation. If you live in one state but work in another, you may owe tax to both — though most states have agreements to prevent you from paying twice on the same income.

Key Takeaways

  • Nine states have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income).
  • State income tax rates range from under 1% to over 13%, depending on your income level and which state you live in.
  • Your employer withholds state income tax from your paycheck based on a form you fill out, similar to federal withholding.
  • If you work in a state different from where you live, you typically owe tax to your home state and may owe tax to your work state as well, though reciprocal agreements sometimes prevent double taxation.
  • State income tax returns are filed separately from federal returns, usually by the same April important date, though some states have different dates.

How state income tax withholding works

When you start a job, you complete a state withholding form (often called a W-4 or a state-specific equivalent) that tells your employer how much state tax to take from each paycheck. The amount depends on your filing status, the number of dependents you claim, and any extra withholding you request. Your employer sends that money to your state's tax agency throughout the year.

If too much is withheld, you get a refund when you file your state return. If too little is withheld, you owe the difference. You can adjust your withholding at any time by submitting a new form to your employer — this is useful if your income changes, you get married, or you have a child.

States with no income tax and what they tax instead

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax on wages. New Hampshire has no income tax on wages either, but it taxes interest and dividend income at 5%. These states fund their operations through sales tax, property tax, corporate tax, or other revenue sources.

If you move to a no-income-tax state, you stop owing state income tax on your wages going forward. However, you may still owe tax to your previous state on income earned there before you moved — your state of residence on December 31 determines where you owe tax for that year. Some states also tax nonresidents on income earned within their borders, so if you worked in a high-tax state before moving, you may owe tax there even after you leave.

Tax brackets and how your rate is calculated

Most states that have income tax use a progressive tax system, meaning your rate increases as your income rises. You do not pay one flat rate on all your income; instead, different portions of your income are taxed at different rates. For example, a state might tax the first $30,000 at 3%, the next $40,000 at 5%, and income above $70,000 at 7%.

A few states use a flat tax, where everyone pays the same percentage regardless of income level. Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, and Pennsylvania are examples. Flat-tax states are simpler to calculate but do not adjust the tax burden based on ability to pay.

Your state tax bracket depends on your filing status (single, married filing jointly, head of household) and your taxable income after deductions. State deductions often differ from federal deductions, so you may deduct a different amount on your state return than on your federal return.

Working across state lines and reciprocal agreements

If you live in one state and work in another, you typically owe income tax to both. However, some states have reciprocal tax agreements that allow you to pay tax only to your home state. These agreements exist mainly in the Northeast and Midwest — for example, Pennsylvania residents who work in New Jersey, Ohio, Indiana, Kentucky, or Virginia can claim reciprocity and pay only Pennsylvania tax.

To claim reciprocity, you usually file a form with your employer in the state where you work, stating that you are a resident of a reciprocal state. Your employer then stops withholding tax for the work state and withholds only for your home state. Without reciprocity, you withhold tax to both states during the year and then claim a credit on your home state return for taxes paid to the other state, which prevents double taxation but requires more paperwork at tax time.

If you are unsure whether your states have a reciprocal agreement, contact the tax agency in the state where you work or check their website — they maintain a list of reciprocal states.

Deductions and credits that lower your state tax bill

Most states allow you to deduct certain expenses from your income before calculating tax. Common deductions include the standard deduction (a flat amount based on filing status), mortgage interest, property taxes, charitable donations, and student loan interest. Some states also allow deductions for retirement contributions, medical expenses, or state and local taxes paid.

States also offer tax credits — direct reductions in the tax you owe — for things like dependent children, education expenses, earned income, and energy-efficient home improvements. Credits are often more valuable than deductions because they reduce your tax dollar-for-dollar, whereas a deduction only reduces your taxable income. Check your state's tax website or your state return instructions to see which credits you may be may have access to to.

Filing your state income tax return

You file your state return separately from your federal return, usually by April 15 each year (though some states have different important date). You can file on paper by mailing the return to your state's tax agency, or you can file electronically through your state's website or through tax software. Many states offer free filing software for lower-income residents.

Your state return asks for similar information to your federal return: your income from all sources, deductions, credits, and withholding paid during the year. If you have income from multiple states, you may need to file returns in more than one state. Some states require you to file even if you have no tax liability, while others do not.

If you move during the year, you may owe tax to two states — your old state for income earned while you lived there, and your new state for income earned after you moved. Each state considers you a resident based on where you lived on December 31, so your filing obligations depend on that date.

Frequently Asked Questions

Do I have to file a state return if I do not owe any tax?

It depends on your state. Some states require you to file if you had any income, even if your withholding covered your liability. Others do not require a return if you have no tax owed. Check your state's tax agency website or your return instructions to see whether filing is required in your situation.

What happens if I do not pay my state income tax?

Your state can assess penalties and interest on unpaid tax, place a lien on your property, garnish your wages, or intercept your federal tax refund. If you cannot pay in full, contact your state's tax agency about setting up a payment plan — most states offer installment agreements for taxpayers who owe money.

Can I deduct state income tax I paid on my federal return?

You can deduct state and local taxes (SALT) on your federal return, but only up to $10,000 per year. This limit applies to the combined total of state income tax, property tax, and sales tax you paid. If you paid more than $10,000 in state and local taxes, you can only deduct $10,000 on your federal return.

If I move to a no-income-tax state, do I owe tax on my old state income?

You owe tax to your old state only on income earned while you lived there. Once you move and establish residency in a new state, you owe tax to the new state going forward. However, your old state may still tax you on income earned before you left, so file a part-year return for both states in the year you move.

How do I know what my state income tax rate is?

Visit your state's department of revenue or taxation website — they publish current tax rates and brackets. You can also use tax software, which pulls the correct rates for your state and income level. Rates change periodically, so check your state's website each year before filing.