Delaware has a state income tax, and it applies to most residents and workers

Yes, Delaware charges a state income tax. If you live in Delaware or work there, you will owe state income tax on wages, self-employment income, interest, dividends, and other earnings. Delaware's tax rates range from 2.2% to 5.75% depending on your income bracket, and the state taxes both residents and nonresidents who earn money within Delaware.

The tax is separate from federal income tax. You file both a federal return with the IRS and a Delaware state return with the Delaware Division of Revenue. Many people use tax software or a tax preparer to handle both at the same time, but they are two different obligations.

Key Takeaways

  • Delaware residents pay state income tax on wages, self-employment income, interest, and dividends at rates between 2.2% and 5.75%.
  • Nonresidents who work in Delaware must also file a Delaware state return, even if they live in another state.
  • You file your Delaware return with the Division of Revenue, separate from your federal return, usually by April 15 each year.
  • Delaware does not tax Social Security benefits, and certain retirement income may be partially or fully excluded depending on your age and income.
  • If you move to or from Delaware during the year, you may owe tax as a part-year resident and should report the move on your return.

Delaware's income tax brackets and rates

Delaware uses a progressive tax system with six income brackets. The lowest bracket starts at 2.2% for single filers earning under $3,250, and the rate increases as income rises. The top rate of 5.75% applies to single filers earning over $60,000 and married filers earning over $80,000. The exact bracket thresholds change slightly each year based on inflation adjustments.

Your filing status matters. Single filers, married filing jointly, married filing separately, and head of household each have different bracket thresholds. A married couple filing jointly will reach the top bracket at a higher income level than a single person filing alone. You can find the current year's brackets on the Delaware Division of Revenue website or in the tax instruction booklet that comes with your return forms.

Who has to file a Delaware return

You must file a Delaware state return if you are a resident with income above a certain threshold, which varies by filing status and age. For 2024, a single person under 65 with gross income of $12,500 or more must file. A married couple filing jointly with combined income of $25,000 or more must file. If you are 65 or older, the income threshold is higher.

Nonresidents who worked in Delaware during the year must also file, even if they live in another state. If you worked part of the year in Delaware and part of the year elsewhere, you file as a part-year resident and report only the income earned while you were in Delaware. Nonresidents and part-year residents use a different form than full-year residents.

Income that Delaware does not tax

Delaware does not tax Social Security benefits, regardless of your income level. If Social Security is your only income, you will not owe Delaware state tax. However, you may still owe federal tax on Social Security depending on your total income and filing status.

Certain retirement income receives special treatment. If you are 60 or older, you may exclude up to $12,500 of retirement income per year, including distributions from IRAs, 401(k)s, pensions, and annuities. The exclusion phases out for higher incomes. Military pensions and some other government pensions have their own rules. You will need to report the income on your return and then claim the exclusion on the appropriate line.

How to file your Delaware return

You can file your Delaware return by mail, online, or through a tax preparer. The state offers free online filing through the IRS Free File program if your income is below a certain level. You can also download forms from the Delaware Division of Revenue website and mail them in. The deadline is typically April 15, the same as federal tax day, though you can request an extension.

You will need your Social Security number, your income documents (W-2s, 1099s, and so on), and records of any deductions or credits you plan to claim. If you are filing as a nonresident or part-year resident, you will also need to report your out-of-state income and the dates you lived in or worked outside Delaware. Keep copies of everything you file for your records.

What happens if you move to or from Delaware

If you moved to Delaware during the year, you file as a part-year resident and report only the income you earned after you arrived. If you moved away from Delaware, you report only the income you earned before you left. You will need to provide the date you moved on your return. Some income, such as capital gains or interest, may need to be allocated between Delaware and your new state based on when you earned it.

If you moved to Delaware from a state that also taxes income, you may owe tax to both states for the part of the year you lived in each. However, Delaware offers a credit for taxes paid to other states to prevent double taxation. You claim this credit on your Delaware return. If you moved from a state with no income tax, you will only owe Delaware tax for the months you lived there.

Penalties and interest for late or incorrect returns

If you file your Delaware return late, the state charges a penalty based on how much tax you owe. The penalty is usually 5% of the unpaid tax for the first month late, plus an additional 5% for each month after that, up to a maximum of 25%. Interest also accrues on unpaid tax at a rate set by the state each quarter, currently around 8% per year.

If you make a mistake on your return, you can file an amended return using Form 1040X (federal) and the Delaware amended return form. You have three years from the original due date to file an amendment. If the state finds an error during an audit, they will send you a notice with the adjustment and the amount you owe, including penalties and interest.

Frequently Asked Questions

Do I have to pay Delaware income tax if I work in Delaware but live in another state?

Yes. Delaware taxes nonresidents on income earned within the state. You must file a Delaware return reporting your Delaware wages or self-employment income. You will also file a return in your home state. Most states offer a credit for taxes paid to other states to avoid paying tax twice on the same income.

What if I only lived in Delaware for part of the year?

You file as a part-year resident and report only the income you earned during the months you lived in Delaware. You will need to provide the date you moved on your return. Income earned before you moved to Delaware or after you moved away is not subject to Delaware tax.

Can I deduct federal income tax from my Delaware return?

No. Delaware does not allow a deduction for federal income tax paid. You can claim the standard deduction or itemize deductions, but federal tax is not deductible. Some states allow this, but Delaware does not.

Is there a Delaware tax on retirement income if I am over 60?

You may exclude up to $12,500 per year of retirement income if you are 60 or older. This includes pensions, IRA distributions, and 401(k) withdrawals. The exclusion phases out for higher incomes. You still report the income on your return but claim the exclusion on the appropriate line.

What if I did not file a Delaware return when I should have?

Contact the Delaware Division of Revenue to file the return as soon as you can. The longer you wait, the more interest and penalties will accrue. The state may also contact you if they discover you did not file. Filing late is better than not filing at all, and you may be able to work out a payment plan if you owe a large amount.