State income tax is a tax on wages, salary, and other income that your state government collects

Not every state has an income tax. Nine states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest)—do not tax wage income at all. The other 41 states and Washington, D.C. collect income tax from residents who earn money within their borders or live there.

The amount you owe depends on how much you earned and your state's tax rate. Most states use a progressive system, meaning the rate goes up as your income goes up. Some states use a flat rate—everyone pays the same percentage regardless of income. Your employer usually withholds state income tax from your paycheck automatically, the same way federal income tax is withheld.

State income tax money funds schools, roads, police, courts, and other services your state runs. It is separate from federal income tax, which goes to the U.S. government. You may owe both.

Key Takeaways

  • Nine states have no income tax on wages; the other 41 states and D.C. collect it from residents and people who work there.
  • Your state's tax rate depends on your income level and whether your state uses progressive rates (higher income, higher rate) or a flat rate (same rate for everyone).
  • Your employer withholds state income tax from your paycheck before you receive it, unless you work in a no-tax state.
  • State income tax is separate from federal income tax; you may owe both, and the amount owed to each is calculated independently.

How state income tax rates work

Most states use a progressive tax system, which means your tax rate increases as your income increases. You do not pay one rate on all your income—instead, your income is divided into brackets, and each bracket has its own rate. For example, a state might tax the first $30,000 at 3%, the next $30,000 at 5%, and income above $60,000 at 6%. Only the income in each bracket is taxed at that bracket's rate.

A smaller number of states use a flat tax, meaning everyone pays the same percentage no matter how much they earn. Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, Mississippi, Missouri, North Carolina, and Pennsylvania use flat rates. These rates range from about 3% to 5.75%, depending on the state.

A few states—including Vermont and New York—have special rates for high earners. These are still progressive systems but with additional brackets at the top end. The exact rates and brackets change most years, so the rate you paid last year may not be the rate you pay this year.

Which income counts toward state tax

State income tax applies to wages and salary from a job, self-employment income if you run a business, interest and dividends from investments, rental income, and other money you receive. Most states also tax retirement income like pensions and distributions from retirement accounts, though some states exempt or partially exempt retirement income for people over a certain age.

Some types of income are not taxed by most states. These include Social Security benefits (in most states), workers' compensation, certain disability payments, and money from life insurance payouts. A few states exempt military pay or income earned outside the state.

If you moved to a new state during the 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. Some states have agreements to avoid double taxation, but you should check your specific situation.

How withholding works on your paycheck

When you start a job, you fill out a W-4 form (federal) and usually a state withholding form. These tell your employer how much to deduct from each paycheck for taxes. Your employer sends the withheld money to the state tax authority on your behalf throughout the year.

The amount withheld is an estimate based on your income and the number of dependents you claim. If too much is withheld, you get a refund when you file your state tax return. If too little is withheld, you owe money when you file. You can adjust your withholding during the year by updating your W-4 or state form if your situation changes—for example, if you get a second job or your spouse starts working.

Self-employed people do not have an employer to withhold taxes, so they must pay estimated state income tax quarterly. This means sending the state a payment four times a year based on what you expect to earn.

Filing a state income tax return

Most states require you to file a state income tax return if you earned income in that state during the year, even if no tax was withheld. The deadline is usually April 15, the same day federal returns are due. Some states allow extensions if you need more time.

You file your state return separately from your federal return. Many states accept returns filed online through their tax department website or through tax software. Some states require you to mail a paper return if you cannot file electronically.

When you file, you report all income you earned, claim any deductions or credits you are may have access to to, and calculate what you owe or what refund is coming to you. Common state deductions include the standard deduction (similar to federal), mortgage interest, and property taxes. Some states offer credits for things like child care expenses or education costs.

States with no income tax and special situations

If you live in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming, you do not pay state income tax on wages. New Hampshire taxes only investment income (interest and dividends), not wages. This does not mean these states have no taxes—they typically use sales tax, property tax, or other revenue sources instead.

If you work in one state but live in another, you may owe income tax to both. Most states tax residents on all income, regardless of where it was earned. However, many states have reciprocal agreements or credits to prevent you from paying tax twice on the same income. For example, if you live in Pennsylvania but work in New Jersey, you typically pay New Jersey tax on your wages and then claim a credit on your Pennsylvania return.

Military members stationed outside their home state usually do not have to pay income tax to the state where they are stationed. Federal employees may have special rules depending on their situation. If you fall into either category, check with your state tax authority or a tax professional.

Frequently Asked Questions

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

Most states have a minimum income threshold. If your income is below that threshold, you do not have to file. The threshold varies by state and by filing status (single, married, dependent). Check your state tax authority's website or your tax software to see if you are required to file.

What happens if I do not pay state income tax?

If you owe state income tax and do not pay, the state can charge penalties and interest, place a lien on your property, garnish your wages, or intercept your federal tax refund. The longer you wait, the more you owe. If you cannot pay in full, contact your state tax authority about payment plans.

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

You can deduct state and local taxes (SALT) on your federal return, but only if you itemize deductions instead of taking the standard deduction. The total SALT deduction is capped at $10,000 per year. Most people benefit more from taking the standard deduction, so check both options when you file.

Do I owe state income tax on unemployment benefits?

Most states tax unemployment benefits as income. Some states exempt a portion of unemployment income or offer a credit. Check your state's rules. If tax was not withheld from your unemployment payments, you may owe when you file your return.

What if I moved states during the year?

You typically owe income tax to both states for the portion of the year you lived in each. File a part-year resident return in each state, reporting only the income earned while you lived there. Some states offer credits to avoid double taxation. Your tax software can usually handle this calculation.