State Individual Income Tax Rates and Brackets

In Texas, before state and local taxes are collected the top 1 percent of taxpayers earn an average income that is 124 times larger than the average income of the state’s poorest 20 percent of residents. This state’s tax system, which ranks as the second most regressive on the Index, only exacerbates this divide. After state and local taxes are collected, the average after-tax income of Texas’s top earners stands at 140 times the size of the average after-tax income of the state’s low-income residents. This is the predictable result of charging low-income families a 13.0 percent effective tax rate, while asking high-income families to pay just 3.1 percent of their income in tax. Most states impose a tax on income of corporations having sufficient connection (“nexus”) with the state. Such taxes apply to U.S. and foreign corporations, and are not subject to tax treaties. Such tax is generally based on business income of the corporation apportioned to the state plus nonbusiness income only of resident corporations.

Your location will determine whether you owe local and / or state taxes. Offer pros and cons are determined by our editorial team, based on independent research. The banks, lenders, and credit card companies are not responsible for any content posted on this site and do not endorse or guarantee any reviews. The methodology used in this study is broadly similar to the approach used in previous editions of the report.

State income tax

The dollar amounts for each bracket vary significantly from state to state, as do the rate at which each bracket is taxed. It’s widely understood that taxpayers at all income levels tend to under-report certain income categories, especially capital gains, pass-through business income, rental income and farm income. For this reason, ITEP’s modeling incorporates estimates of the amount of unreported income of each type.

State and local governments levy taxes on real property (e.g., homes) and, in some states, on personal property such as motor vehicles. While locally-administered rates can vary substantially within a state, our analysis models a uniform statewide-average tax rate on real and personal property in each state.

Expert Insights: Moving and Taxes

Most states also exempt income from bonds issued by that state or localities within the state as well as some portion or all of Social Security benefits. Many states provide tax exemption for certain other https://www.bookstime.com/ types of income, which varies widely by state. States uniformly allow reduction of gross income for cost of goods sold, though the computation of this amount may be subject to some modifications.

Some states apply the exemption only to certain types of property tax levies, such as school taxes, while other states apply the exemption to all homeowner property taxes. In combination with a flat rate structure, these tax breaks can create an odd —and unfair — situation where the highest income taxpayers devote a lower percentage of their income to income taxes than their middle-income neighbors. Ten states — Washington, Texas, Florida, South Dakota, Nevada, Tennessee, Pennsylvania, Illinois, Oklahoma, and Wyoming — are particularly regressive, with upside-down tax systems that ask the most of those with the least. These “Terrible 10” states tax their poorest residents — those in the bottom 20 percent of the income scale — at rates up to six times higher than the wealthy.

Where do you pay income tax for out-of-state work?

Over the past four decades, wealth has increasingly concentrated among the highest-income households. The reasons are complex and vast, but legislation, regulation, and federal court rulings certainly have contributed. For married taxpayers filing a joint return and USD 539,900 for all other taxpayers . As of 2022, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax. Note that Washington does levy a state capital gains tax on certain high earners. New Hampshire does not tax earned income but does tax dividends and interest.

• Most states tax capital gain and dividend income in the same manner as other investment income.
• Yet some states have been more successful than others in creating a truly progressive personal income tax — one in which effective tax rates increase with income.
• Most state and local tax systems worsen income inequality by making incomes more unequal after collecting state and local taxes.
• In other states, the top rate kicks in at a much higher level of marginal income.

Although Alabama’s income tax is essentially flat, the federal income tax is still progressive. So Alabama’s deduction for federal income taxes disproportionately benefits the state’s wealthiest taxpayers. As a result, effective marginal income tax rates in Alabama actually decline at the state’s highest income levels. Despite the 5 percent top tax rate, the effective income tax rate on the very wealthiest taxpayers is actually less than 3 percent. Among the six states that allow a deduction for federal taxes, three allow a full deduction for federal taxes, including Alabama, while the other three have a partial deduction. A neighboring state, Virginia, has a personal income tax with fewer tax brackets over a narrower range (2 to 5.75 percent), and a top rate that begins at a modest $17,000 of taxable income. Further, a family in the top 1 percent, earning an average of $1.4 million dollars a year, pays the same top rate as many families whose wages leave them near or even below the poverty line.

tax brackets (for taxes due April 2023 or October 2023 with an extension)

But, whereas W-2 employees split the combined FICA tax rate of 15.3% with their employers, 1099 workers are responsible for the entire amount. Opinions expressed here are author’s alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate state income tax rates as of the date of publication and are updated as provided by our partners. Some of the offers on this page may not be available through our website. Because so many states offer special consideration for elderly taxpayers, including elderly families in the Who Pays? Analysis would not give an accurate depiction of how the tax structure treats the majority of taxpayers.

• The average state’s consumption tax structure is equivalent to an income tax with a 7.1 percent rate for the poor, a 4.8 percent rate for the middle class, and a 0.9 percent rate for the wealthiest taxpayers.
• The cheapest way to pay a tax bill is still via a check or via IRS Direct Pay, which allows you to pay your bill directly from a savings or checking account.
• Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy.
• Moreover, many states have rules in place that provide special tax breaks for capital gains and other income sources that are highly concentrated in the hands of the best-off 1 percent.

As of June 1, 2017, taxpayers cannot claim the personal exemption if their adjusted gross income exceeds $250,000 or $500,000 . Exemption credits phase out for single taxpayers by $6 for each $2,500 of federal AGI above $212,288 and for MFJ filers by $12 for each $2,500 of federal AGI above $424,581. Connecticut and New York have “tax benefit recapture,” by which many high-income taxpayers pay their top tax rate on all income, not just on amounts above the benefit threshold. Currently, 41 states and the District of Columbia levy a personal income tax. Weighing the tax landscape against your financial picture could help you stretch your dollars further.