States with maximum income tax rates of at least 5% but less than 6% are Rhode Island, New Mexico, Idaho, Georgia, Maryland, Virginia, Kansas, Alabama, and Mississippi. The law also established tax triggers that, contingent upon revenue meeting certain benchmarks, could phase down the individual income tax rate to zero over many years, starting with a likely further reduction from 4.5 to 4 percent in 2024. 1 to convert the individual income tax structure to a flat rate of 5.8 percent, down from a top marginal rate of 6 percent. As this law was designed in part to supersede a tax increase proposal that was approved for the ballot but later withdrawn, the law technically took effect January 3, 2023, but its provisions apply retroactively to January 1, 2023.

And third, other states to which residents pay state and local taxes could have seen changes in tax collections (again due to changing policy or economic conditions). New York, Hawaii, and Connecticut have occupied the top three spots on the list since 2017, with California, Maryland, Minnesota, New Jersey, and Vermont typically vying for the next five spots—though not always in the same order. This may be partially attributed to high expenditure levels, which must be sustained by high levels of revenue. High levels of capital gains will result in residents paying an increased share of other states’ business taxes.[2] Finally, a substantial portion of Hawaii’s tax burden is generated by the tourism industry and substantially exported to the rest of the country. Broadly, this means that the government decides how much tax you owe by dividing your taxable income into chunks — also known as tax brackets — and each chunk gets taxed at the corresponding tax rate. The highest tax rate, the marginal rate, applies to only a portion of your income.

What is state income tax?

The tax tables below apply to income earned in 2023, which is reported on tax returns due by April 15, 2024, or October 15, 2024, with a tax extension. When your income jumps to a higher tax bracket, you don’t pay the higher rate on your entire income. You pay the higher rate only on the part that’s in the new tax bracket. States with an income tax require employers to withhold state income tax on wages earned within the state. Some states have other withholding mechanisms, particularly with respect to partnerships.

• While sales taxes often go overlooked in budgeting, they can accumulate significantly over time.
• The main driver is state taxes on oil extraction (severance taxes and taxes on oil production and pipeline property).
• (w) Deduction and/or exemption tied to federal tax system.
• All states taxing business income allow deduction for most business expenses.
• We’re here to outline the states where you’ll pay the highest and lowest income taxes, giving you a clearer picture of your financial landscape.

The state will also adopt federal taxable income as the income tax starting point, thereby bringing in the federal standard deduction. 399 will double the bracket widths for married filers, thereby removing the marriage penalty that currently exists in the state’s income tax code. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. Single tax filers with taxable income up to $27,272 (double if filing jointly) would have been taxed at a rate of 2.55 percent. Any taxable income exceeding that amount would have been taxed at a rate of 2.98 percent.

Which Taxes Are Included in the Tax Burdens Estimates?

Nevada taxes wage income at a low rate under the state’s Modified Business Tax but does not tax investment income. New Hampshire taxes interest us state income tax rates and dividend income but not wage income. The shareholders are then responsible for paying individual income taxes on this income.

When a metropolitan area attracts workers from nearby states, a large portion of wage income in a state can be earned by border-crossing commuters. On the other hand, some states have reciprocity agreements in which they tax their own residents, regardless of where they work. The legal incidence of taxes is generally very different from the final economic burden. Because taxes influence the relative prices facing individuals, they lead to changes in individual behavior. These tax-induced changes in behavior cause some portion (or all) of the economic burden of taxes to be shifted from those bearing the legal incidence onto others in society. For example, the legal incidence of corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits.

What is Tax Exporting?

Typically, state income tax returns are due at the same time as your federal tax return — April 15th. However, some states may have different deadlines, and it’s worth checking the specifics for where you live, especially in years where the date might be pushed due to holidays or weekends. Tax systems differ, with some states applying a flat tax rate to all residents, while others use progressive rates that increase as income rises. The choice between these systems reflects the state’s financial strategy and the political environment shaped by public opinion and elected officials. Where you call home isn’t just about proximity to work or the quality of local schools—it can also be about the slice of income taken by state taxes.

In New Hampshire, only interest income and tax dividends are taxed at a rate of 4%, but not personal income tax. Similarly, Washington has a tax rate of 7%, but this is only on capital gains income. In the remaining seven states, there is no state income tax. However, the state makes revenue through other forms of taxation, such as higher property tax rates or higher sales tax rates. Many of the law’s provisions took effect on January 1, 2023, including the initial reduction in the individual income tax rate from 5 to 4.5 percent.