State income tax is a tax on wages, investment income, and other earnings that most states collect from residents and workers

Not every state has an income tax. Nine states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income)—do not tax wages at all. The remaining 41 states and Washington, D.C. collect income tax at rates that range from less than 1% to over 13%, depending on how much you earn and where you live.

If you work or receive income in a state with an income tax, that state expects you to report it. Your employer usually withholds the tax from your paycheck automatically, but you may owe more or receive a refund when you file your state tax return. The amount you owe depends on your total income, your filing status, and the deductions and credits your state allows.

Key Takeaways

  • Nine states have no income tax on wages; the other 41 states and D.C. tax income at rates that vary by state and income level.
  • Your employer typically withholds state income tax from your paycheck, but you must file a state return to settle what you actually owe.
  • State tax brackets and rates change yearly, and some states offer credits for low-income households, property taxes, or dependents.
  • If you work in one state but live in another, you may owe tax to both states, though most have agreements to prevent double taxation.
  • Filing deadlines for state returns usually match the federal deadline in April, though some states allow extensions.

How state income tax brackets and rates work

State income tax is progressive, meaning the rate increases as your income rises. Most states divide income into brackets—ranges of earnings taxed at different rates. For example, a state might tax the first $10,000 at 2%, the next $20,000 at 4%, and income above that at 6%. You do not pay the top rate on all your income, only on the portion that falls in each bracket.

Tax rates and bracket thresholds change every year. A state might adjust them for inflation or pass new legislation that raises or lowers rates. Some states, like Colorado and Illinois, have a flat tax—one rate applied to all income regardless of bracket. Others, like California and New York, have many brackets with rates that climb steeply at higher incomes.

You can find your state's current tax brackets and rates on your state's department of revenue website. These sites usually publish the brackets for the current tax year by January or February. If you are planning your finances or trying to estimate what you will owe, checking your state's official site is faster and more accurate than relying on a general guide.

What income counts and what deductions reduce it

State income tax applies to wages from a job, self-employment income, interest, dividends, rental income, and retirement distributions. Some states also tax capital gains (profit from selling investments) at a different rate than ordinary income. A few states exempt certain types of income—for instance, some do not tax retirement account withdrawals or military pensions.

Before calculating your tax, you subtract deductions. Most states allow a standard deduction—a flat amount you can subtract from your income without itemizing expenses. The standard deduction varies by state and filing status (single, married, head of household). Some states also let you itemize deductions instead, claiming actual expenses like mortgage interest or charitable donations, though the rules differ from federal deductions.

States also offer tax credits that directly reduce the tax you owe. Common credits include the Earned Income Tax Credit (EITC), which helps low- and moderate-income workers; child and dependent credits; and property tax credits for homeowners. Credits are more valuable than deductions because they subtract directly from your tax bill rather than from your income.

Withholding, filing, and what happens if you underpay

When you start a job, you fill out a withholding form (usually called a W-4 or state equivalent) telling your employer how much state tax to hold from each paycheck. Your employer sends that money to the state on your behalf. If your withholding is accurate, you will owe little or nothing when you file your return. If too little was withheld, you will owe a balance. If too much was withheld, you will receive a refund.

You must file a state income tax return by the same deadline as your federal return—usually April 15, though some states allow extensions to October 15. You file in the state where you lived on December 31 of the tax year, or in the state where you worked if you are a nonresident. Some states allow electronic filing for free; others charge a fee unless you use a certified free software provider.

If you do not file or pay what you owe, the state can assess penalties and interest. Penalties typically start at 5% to 10% of the unpaid tax and grow if the debt remains unpaid. Interest accrues daily. If you owe a large amount, the state may place a lien on your property, garnish your wages, or intercept a federal refund to cover the debt. If you cannot pay in full, most states offer payment plans or hardship relief if you contact them before the debt becomes severe.

Working across state lines and avoiding double taxation

If you live in one state and work in another, you may owe tax to both. The state where you work can tax your wages, and the state where you live can tax your income from all sources. To prevent you from paying tax twice on the same income, most states have reciprocal agreements or offer credits for taxes paid to other states.

For example, if you live in New Jersey and work in New York, New York taxes your wages but New Jersey offers a credit for New York taxes paid. You file returns in both states, but the credit prevents double taxation. The rules vary by state pair, so if you work across state lines, check both your home state's and work state's department of revenue websites to understand your filing obligations.

Remote workers and people who moved mid-year should also verify their filing status. Some states tax residents on all income regardless of where it was earned. Others tax nonresidents only on income earned within the state. If you moved or changed jobs during the year, you may be a part-year resident of two states and owe tax to both.

Special situations: Self-employment, retirement, and military income

If you are self-employed, you owe state income tax on your net business income (revenue minus business expenses). You do not have an employer withholding tax, so you may need to make quarterly estimated tax payments to avoid penalties. The amount and deadline for estimated payments vary by state; check your state's department of revenue for the schedule and forms.

Retirement income is taxed differently depending on the source and the state. Some states exempt Social Security benefits entirely. Others tax distributions from traditional IRAs and 401(k)s as ordinary income but exempt military pensions or teacher retirement benefits. A few states have no income tax at all, which makes them attractive to retirees. If you are planning retirement or recently retired, understanding your state's treatment of retirement income can significantly affect your tax bill.

Military active-duty pay is taxed by the state where you are stationed, not your home state, even if you are a resident of another state. Military spouses who work may also have special filing rules. If you are military or a military spouse, your state's department of revenue website usually has a section explaining these rules.

Finding your state's tax forms and getting help

Every state publishes its tax forms and instructions on its department of revenue website. You can download forms, read the current year's tax guide, and find contact information for the department. Most states also offer free tax preparation help through the Volunteer Income Tax Assistance (VITA) program, which is run by the IRS but includes state tax preparation at no cost for low- and moderate-income households.

If you have questions about your state taxes, start with your state's department of revenue. They maintain phone lines, email support, and sometimes live chat. Response times vary, but most states answer routine questions within a few business days. If you have a complex situation—such as owing back taxes, facing a lien, or dealing with a dispute—you may benefit from consulting a tax professional or your state's taxpayer advocate office, which helps resolve disputes between taxpayers and the revenue department.

Frequently Asked Questions

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

Most states require you to file if your income exceeds a threshold, which is usually close to the standard deduction. Even if you do not owe tax, filing may be worth it if you are due a refund or may have access to for a credit like the EITC. Check your state's department of revenue website for the filing requirement threshold for your situation.

What if I moved during the year?

You are a part-year resident of both states and must file returns in each. You report income earned while living in each state to that state. Some states offer a credit to prevent double taxation on the same income. File in both states by the April deadline unless one state allows an extension.

Can I deduct federal income tax from my state taxes?

Most states do not allow a deduction for federal income tax paid. A few states allow it as an itemized deduction, but the benefit is usually small. Check your state's tax guide or department of revenue website to see if your state permits it.

What happens if I underpay my state taxes?

The state will assess penalties and interest on the unpaid amount. Penalties typically start at 5% to 10% of the tax owed and grow over time. If the debt is large or unpaid for years, the state may garnish your wages, place a lien on property, or intercept a federal refund. Contact your state's department of revenue to set up a payment plan if you cannot pay in full.

Are there states with no income tax that I can move to?

Yes—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes investment income only) have no state income tax on wages. However, these states often have higher sales taxes, property taxes, or other fees to make up the revenue. Moving for tax reasons alone may not save money overall.