A Guide to States with the Lowest and Highest Income Taxes in the U.S.

Most people decide where to live based on work, family, or lifestyle, but state taxes play a major role in long-term financial planning. Income tax can influence take-home pay, retirement decisions, and even the affordability of daily expenses. Some states apply higher rates to support public services, while others keep taxes low to encourage business growth and employment. A clear understanding of how state income tax works, and how each state sets its rates, makes it easier to see the real impact on your finances. This guide explains those differences and takes a closer look at where income taxes are the highest and lowest in the country, along with what to expect when filing.

What Is State Income Tax?

State income tax is a tax on individual earnings that helps states fund services and government operations. While federal income tax applies nationwide, state systems are separate, and each state sets its own policy. Most states tax wages, and many use progressive brackets where higher income levels are taxed at higher rates. A smaller number of states apply a single flat rate across all taxable income, while several others tax interest or dividend income only. The range is wide, with some states collecting more than ten percent from top earners and others choosing not to tax personal wage income at all.

Tax outcomes vary significantly from one state to another. The same earnings can lead to different liabilities depending on state rules, rate structures, and the type of income included. As a result, state income tax influences overall tax responsibility and can affect long-term financial planning for residents and new movers.

How Do States Decide Their Income Tax Rates?

States determine their income tax rates through legislative decisions that balance revenue needs with the state’s broader financial strategy. Some states rely heavily on income tax revenue, while others depend more on sales and property taxes or industry-specific revenues to fund their budgets. When a state chooses not to tax wages, it often compensates through higher taxes in other categories or different revenue policies.

Economic and competitive factors also shape these decisions. States adjust their tax codes over time to attract residents, retain businesses, or support public programs. For example, some states that impose higher income tax rates use that revenue to fund education, infrastructure, or healthcare, while states with lower or no wage taxes lean on other revenue streams. This variation is why taxpayers with similar earnings can face very different obligations depending on where they live.

States with the Highest Income Taxes

A small group of states imposes income tax rates that sit well above the national average, particularly for top earners. Their systems use progressive brackets that increase at higher income levels, and these policies create some of the largest differences in what residents owe from one state to another. The financial impact is most visible in states with the highest income tax, where the upper brackets reach double-digit percentages and contribute a significant share of revenue for state programs and services.

Top States by Income Tax Rate

A small group of states apply the highest top marginal income tax brackets in the country, creating a noticeable gap in what high-income earners owe compared to states with moderate or low rates. Based on current state tax structures:

• California has the highest top marginal rate in the nation at 13.3%
• Hawaii reaches a top rate of 11%
• New York applies a top rate of 10.9%
• New Jersey and the District of Columbia tax top brackets at 10.75%
• Oregon reaches 9.9%
• Minnesota applies 9.85% at its highest tier

These rates apply only to top earners, and the financial impact on high-income taxpayers can be substantial. Two individuals earning the same income can face very different state tax bills depending on where they live, which is one reason high earners in these states are more likely to plan carefully to avoid mistakes or trigger a tax audit. Even a small change in bracket placement can translate into thousands of dollars in additional tax liability each year.

States with the Highest Overall Tax Burden

Some states collect substantial revenue not just through income tax, but also through property tax, sales tax, and other state and local taxes. When all of these are combined, a few states appear repeatedly in the group with the heaviest overall tax load. This broader measure shows how total obligations can differ even when income tax structures look similar.

• New York, Connecticut, and New Jersey are frequently identified among the states with the highest combined tax burden
• Their ranking reflects multiple revenue sources, not income tax alone
• A state with moderate income tax rates can still rank high overall due to property or sales taxes

This wider comparison highlights why two residents earning the same income in different states can experience very different long-term costs once all state and local taxes are factored in.

States with the Lowest Income Taxes

A small number of states keep income tax obligations well below the national average, creating a noticeable difference in how much residents owe on their earnings. Some use flat tax systems with modest rates, while others tax only limited forms of income. Several states do not tax wage income at all, placing them among the states with the lowest personal income tax. These variations are a major reason tax outcomes differ even when two taxpayers earn the same amount.

States with Minimal Income Tax

A set of states applies income tax at levels that remain lower than most of the country. The reference data highlights states that consistently fall on the lower end of state rate structures:

• North Dakota places its top rate below three percent
• Pennsylvania applies a flat tax of 3.07 percent
• Indiana and Michigan levy flat tax rates below five percent
• Colorado, Illinois, and Utah maintain flat tax systems with rates that remain under the national average

These states reduce tax pressure by keeping brackets or flat rates comparatively small. For taxpayers, these differences can matter during annual filing, especially if missing income details or deductions lead to corrections or an IRS penalty when state and federal filings do not match.

States with No State Income Tax

Several states do not impose a tax on wage income at all. Residents still file federal returns, but their work earnings are not taxed at the state level. The seven states with no personal income tax are:

• Texas
• Florida
• Nevada
• Wyoming
• Washington
• Alaska
• South Dakota

Some states separate taxable wage income from other income categories. For example, a few tax interest or dividends, while leaving wages untaxed. This keeps earned income off state tax returns, but residents still contribute through other state or local taxes as part of regular living costs.

Filing State Income Taxes

State income tax returns are filed directly with the state’s tax agency, separate from a federal return. Each state sets its own filing rules, which can include different income thresholds, residency definitions, and treatment of deductions or credits. States that tax wages generally require most residents with earned income to file a return, while states that tax only specific types of income have narrower filing requirements. Because state rules vary, a taxpayer moving from one state to another may face different filing obligations even at the same income level.

Filing State and Federal Taxes Together 

Federal and state returns are filed separately but use shared income data, which helps states verify information reported to the IRS. Many states begin their calculation with the taxable income reported on the federal return and then apply state-specific deductions, credits, or adjustments. Any mismatch between the amounts reported to a state and the amounts filed with the IRS can lead to corrections, notices, or additional tax due. This is particularly important for taxpayers who earn income in more than one state or have income categories treated differently under state law. To avoid errors and maintain compliance, consult an IRS tax attorney for guidance on accurate state and federal filing.

Deadlines, Requirements, and Documentation

State income tax filing follows rules that can differ by state, but several patterns appear across most state systems:

Deadlines

• Most states align their filing deadline with the federal due date of April 15, unless the date falls on a weekend or holiday
• When a federal extension is granted, some states automatically accept it, while others require a separate state extension request
• Missing a state extension can lead to interest or a revised balance even if a federal extension is active

Filing Requirements

• A state return may be required when a resident files a federal return, earns income taxed by that state, or meets a state-specific income threshold
• States that tax only certain types of income, such as interest or dividends, may have narrower filing rules
• Taxpayers who earn income in more than one state may need to show how earnings were divided, because residency and taxable income rules differ by state

Documentation

• Wage income is reported with Form W-2
• Interest, contract work, or investment income is reported with 1099 forms
• Some states require additional schedules for credits, deductions, or adjustments that do not match federal treatment
• Clear documentation helps state agencies verify income reported to the IRS and reduces the chance of notices or corrections after filing

Get Professional Support Filing State Taxes with The Law Offices of Nemeth & Flores

Filing state income taxes requires accuracy, especially when income is reported across multiple states or treated differently under state rules. At the Law Offices of Nemeth & Flores, our skilled IRS tax attorney offers tailored guidance for state filing requirements, documentation, extensions, and corrections. Professional support helps ensure your return aligns with state regulations and federal reporting, helping reduce the risk of notices or penalties. For assistance with your state tax filings, call (972) 426-2944 or submit your details through the contact form to schedule a consultation.

Frequently Asked Questions 

How is state income tax different from federal income tax?

Federal income tax applies nationwide and is filed with the IRS. State income tax is filed with a state revenue agency, and each state sets its own rates and rules. Some states tax wages, some tax only certain types of income, and a few do not tax wage income at all.

Do I have to pay state income tax if I live in one state but work in another?

It depends on state law. Some states require a return if income is earned there, and others allow credits to avoid double taxation. For accurate filing, consult an experienced tax attorney.

How do I file my state income tax?

Most states accept electronic or mail filings. Many begin with income from the federal return and then apply state-specific deductions, credits, or adjustments before calculating the final amount owed.

Are there penalties for not paying state income tax?

Yes. States can charge penalties and interest when tax is not paid or when a required return is not filed. The amount depends on state rules.

What income is subject to state income tax?

Many states tax wages and other income, while some tax only certain categories such as interest or dividends. A few do not tax wage income at all. The type of income taxed depends on each state’s tax code.

Can I claim a credit for taxes paid to another state?

Some states offer a credit when the same income is taxed by more than one state. Eligibility depends on state law and how the income was earned.

Do states audit income tax returns?

State agencies may review a return when information does not match federal records or when documentation is incomplete. A return may be adjusted if corrections are needed.

Are state income taxes refundable?

If too much tax is paid through withholding or estimated payments, most states issue a refund once the return is processed.

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