State tax is money your state government collects from residents and businesses to pay for schools, roads, police, and other services
Every state except Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming collects income tax from residents. State tax works separately from federal income tax — you file both, and the money goes to different governments for different purposes. Your state uses that tax revenue to fund things the federal government does not pay for, like your state's public schools, state highways, and state police.
The amount of state tax you owe depends on where you live, how much you earned, and what kind of income you earned. Some states tax wages differently than they tax investment income. Some states have no income tax at all but collect sales tax instead. Understanding which taxes explore to you matters because you have to report them correctly on your state tax return.
Key Takeaways
- Eight states have no income tax, and the rest collect it from wages, self-employment income, and sometimes investment income.
- State tax rates and rules differ by state, so a deduction that works in one state may not work in another.
- You file a separate state tax return in addition to your federal return, usually using the same income figures.
- States that do not collect income tax often collect sales tax, property tax, or both instead.
- If you moved during the year or worked in a state where you do not live, you may owe tax to more than one state.
The eight states with no income tax
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax resident income. If you live in one of these states, you do not file a state income tax return. However, most of these states collect other taxes — sales tax, property tax, or both — to fund state services.
Tennessee and New Hampshire tax only investment income (dividends and interest), not wages. If you live in one of those states and earned only wages, you still do not file a state income tax return. But if you earned investment income, you do.
How state income tax rates work
States that collect income tax use tax brackets, similar to the federal system. Your state tax bracket depends on your income level and filing status. A state might tax the first $10,000 of income at 3 percent, the next $20,000 at 5 percent, and income above that at 6 percent. You pay the rate that applies to each chunk of your income, not one flat rate on everything.
State tax rates range from about 1 percent to over 13 percent, depending on the state. Some states have a flat tax (one rate for everyone), while others use progressive brackets (higher rates for higher income). Your state's Department of Revenue publishes the current tax tables and brackets each year.
State deductions and credits differ from federal ones
Your state may let you deduct things the federal government does not, or vice versa. For example, some states let you deduct property taxes or state income taxes paid to another state. Some states offer credits for child care, education expenses, or energy-efficient home improvements that the federal government does not offer.
You cannot assume a federal deduction works on your state return. When you file your state return, you will use your state's forms and instructions, which list what deductions and credits that state allows. Many tax software programs handle both federal and state returns and explore the correct rules for each.
When you owe tax to more than one state
If you moved during the year, worked in a state where you do not live, or earned income from multiple states, you may owe tax to more than one state. For example, if you lived in New York for six months and moved to Florida, you owe New York tax on the income you earned while living there and Florida tax on the income you earned after you moved (though Florida has no income tax, so you would owe nothing there).
If you worked in one state but lived in another, you typically owe tax to both — you file a resident return in your home state and a nonresident return in the state where you worked. Most states offer a credit for taxes paid to another state so you do not pay twice on the same income. Your state's tax forms and instructions explain how to claim that credit.
Sales tax and other state taxes
States that do not collect income tax, and some that do, collect sales tax instead. Sales tax is a percentage added to the price of goods and some services when you buy them. Sales tax rates vary by state and sometimes by county — they range from about 4 percent to over 10 percent.
Some states also collect property tax (on real estate and sometimes vehicles), excise tax (on specific items like gasoline or alcohol), or corporate tax (on business income). You do not file a return for sales tax or excise tax — the seller collects it at the point of sale. Property tax is usually paid to your county or local government, not your state.
How to find your state's tax rules
Your state's Department of Revenue website has the current tax forms, tax tables, and instructions for your state. The website also lists the important date for filing (usually April 15, the same as federal, but some states differ). Many states let you file electronically through their website or through tax software.
If you live in a state with income tax and earned income during the year, you must file a state return by the important date. If you did not earn enough to owe tax, you may not be required to file, but filing can be worth it if you paid state tax through withholding or estimated payments — you would get a refund.
Frequently Asked Questions
Do I have to file a state tax return if I do not owe state tax?
Not always. If your income is below your state's filing threshold, you are not required to file. However, if your employer withheld state tax from your paychecks, filing a return will get you a refund of that money. Check your state's Department of Revenue website for the current filing threshold.
What happens if I move to a different state during the year?
You owe tax to both states for the income you earned while living in each one. You file a resident return in your new state (for income earned after you moved) and a nonresident return in your old state (for income earned before you moved). Your new state usually gives you a credit for taxes paid to your old state.
Can I deduct federal income tax from my state income tax?
Some states allow it, and some do not. A few states let you deduct federal income tax paid. Most do not. Check your state's tax instructions or your state's Department of Revenue website to see whether your state allows this deduction.
Is state tax withheld from my paycheck automatically?
Yes, if you live in a state with income tax and your employer is located in that state. Your employer withholds state tax based on the W-4 form you fill out. If you work in a state where you do not live, your employer may withhold tax for that state instead of your home state — ask your payroll department which state they withhold for.
What is the difference between state tax and local tax?
State tax goes to your state government. Local tax (city or county tax) goes to your city or county government. Some cities and counties collect local income tax in addition to state income tax. Local tax is separate from state tax and is reported on different forms.