State income tax is a percentage of your earnings that your state government collects, separate from federal income tax

Most states take a cut of your paycheck or self-employment income. The amount varies by state — some take nothing, others take up to 13 percent. Your employer usually withholds it automatically, the same way federal tax comes out. At the end of the year, you file a state tax return (separate from your federal return) to report what you earned and what was withheld, then either get a refund or pay what you still owe.

State income tax funds schools, roads, police, and other services your state runs. It is different from sales tax (which you pay at the register) and property tax (which homeowners pay). Understanding how it works matters because it affects your take-home pay, your refund, and whether you owe money when you file.

Key Takeaways

  • Nine states have no income tax at all; the other 41 states and Washington, D.C. collect it at rates ranging from roughly 1 to 13 percent depending on your income level.
  • Your employer withholds state income tax from each paycheck based on a form you fill out (usually called a W-4 or state equivalent), so you do not have to pay it all at once.
  • You file a separate state tax return each year to report your total income and get a refund if too much was withheld, or pay if too little was taken out.
  • State income tax rates are often progressive, meaning higher earners pay a higher percentage, though a few states use a flat rate that applies to everyone.

Which states collect income tax and which do not

Nine states collect no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income, not wages). If you live or work in one of these states, you will not file a state income tax return for wages.

The other 41 states and Washington, D.C. all collect income tax. The rates and brackets differ widely. Some states use a flat rate — everyone pays the same percentage regardless of income. Others use progressive brackets, where you pay a higher percentage as your income rises, similar to how federal tax works. A few states have only one or two brackets. You can find your state's current rates on your state's department of revenue website.

How withholding works and why your employer takes money out

When you start a job, you fill out a withholding form — usually a W-4 (federal) and a state equivalent. On this form, you tell your employer how much tax to take out of each paycheck. If you claim zero dependents and take no deductions, your employer withholds more. If you claim dependents or expect to owe less, you can adjust it so less is withheld.

Your employer sends the withheld money to the state on your behalf throughout the year. This is not a loan or a penalty — it is prepayment toward your tax bill. The goal is to withhold roughly the right amount so that when you file your return in spring, you either break even or get a small refund. If you withhold too little, you will owe money when you file. If you withhold too much, you get a refund.

You can change your withholding at any time by submitting a new form to your payroll department. This is useful if you get a raise, take a second job, or have a major life change like marriage or a child.

Progressive versus flat tax rates

Most states that collect income tax use a progressive system with multiple brackets. This means your income is taxed at different rates depending on how much you earn. For example, a state might tax the first $30,000 at 3 percent, income from $30,001 to $70,000 at 5 percent, and income above $70,000 at 7 percent. You do not pay 7 percent on all your income — only on the portion above $70,000.

A smaller number of states use a flat tax, where everyone pays the same percentage no matter how much they earn. Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, and Pennsylvania all use flat rates. The advantage is simplicity; the disadvantage (depending on your view) is that lower earners pay the same rate as higher earners.

Filing your state tax return

You file your state return separately from your federal return, usually between January and April 15. You will need the same documents: W-2 forms from your employer (or 1099s if you are self-employed), records of any deductions you claim, and proof of any state taxes paid. Many states accept returns filed electronically through tax software or through a tax preparer.

When you file, you report your total income for the year and the total state tax your employer withheld. The state compares the two. If you withheld more than you owe, you get a refund. If you withheld less, you pay the difference. Some states allow you to apply your refund to next year's taxes instead of receiving it as a check.

If you did not have an employer (you are self-employed), you usually have to make quarterly estimated tax payments to your state throughout the year, rather than waiting until April. Your state's department of revenue can tell you the due dates and how much to pay.

What happens if you move to a different state

If you move mid-year, you may owe income tax to both your old state and your new state for the portion of the year you lived in each. Most states have a rule: you owe tax to the state where you lived when you earned the income. So if you worked in State A from January to June and moved to State B in July, you owe State A tax on your January-June income and State B tax on your July-December income.

Some states offer credits to prevent you from paying tax twice on the same income. When you file, you report income to both states and claim a credit on your new state's return for taxes paid to your old state. The specifics vary by state, so check with both states' revenue departments if you moved during the tax year.

Self-employment and state income tax

If you are self-employed, you still owe state income tax on your net business income (revenue minus business expenses). You do not have an employer to withhold it, so you are responsible for paying it yourself.

Most states require self-employed people to make quarterly estimated tax payments — usually on April 15, June 15, September 15, and January 15 of the following year. You calculate your expected annual income, subtract deductions, and pay roughly one-quarter of the estimated tax each quarter. When you file your annual return, you reconcile what you paid with what you actually owe and either get a refund or pay the difference.

If you do not make quarterly payments and owe a large amount at tax time, you may face penalties and interest. Your state's department of revenue publishes worksheets and instructions to help you calculate quarterly payments.

Frequently Asked Questions

Do I have to file a state tax return if I did not earn much money?

It depends on your state and your income level. Each state sets a minimum income threshold — if you earned less, you may not have to file. However, if your employer withheld state tax from your paychecks, you should file anyway to get a refund. Check your state's department of revenue website for the current threshold.

What if I worked in one state but live in another?

You typically owe tax to the state where you worked, not where you live. However, some states have reciprocal agreements that change this. If you live in State A and worked in State B, you may owe tax only to State A. Check both states' revenue departments to confirm, especially if you live near a state border.

Can I claim deductions on my state return?

Yes, but state deductions often differ from federal deductions. Some states allow the standard deduction (like the federal return), while others let you itemize. A few states do not allow deductions at all. Your state's tax forms and instructions will show what you can deduct.

What if I did not file a state tax return in previous years?

Contact your state's department of revenue. Many states have a process to file back returns and work out a payment plan if you owe. The sooner you file, the lower the penalties and interest typically are. Some states offer amnesty programs that reduce or waive penalties for people who file late.

How do I know if my withholding is correct?

Use your state's withholding calculator (usually on the department of revenue website) or review your last year's return. If you got a large refund, you withheld too much. If you owed a large amount, you withheld too little. Adjust your W-4 or state form to bring yourself closer to zero.