Each state independently determines their own income tax for residents. Depending on which state you live in, you’ll pay a percentage of the amount you earn at your job to the state government.
What are State Income Taxes
States can tax your income if you are a resident or have some other significant connection to the state. States have the option of developing their own system of taxation, though many chose to follow a structure that’s similar to the federal government. There are some states that opt to tax income on a flat rate, while other states completely forgo an income tax at all.
Flat Tax States
The following seven states tax residents’ incomes at a flat rate:
- Colorado
- Illinois
- Indiana
- Massachusetts
- Michigan
- Pennsylvania
- Utah
For the 2016 tax year, the flat tax rates ranged between 3.3 in Indiana to 5.1% in Massachusetts. So, whether you earn $100,000 or $1 million in earnings from Indiana, you’ll still only pay 3.3% of your income.
No-Tax States
Additionally, there are also seven states that don’t tax income at all. They are:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Washington
- Wyoming
States Using Federal Framework
Thirty-six other states along with the District of Columbia use an income tax system like the federal government. In doing so, state residents fall into specific tax brackets with different percentages that increase as they earn more. AT the state level, income tax code is usually simpler than that of the federal government. There’s less brackets and tax rates that are lower, and in some cases, states adjust taxation for inflation.
State Tax Deduction
If you live in a state that requires payment of income taxes, you may be eligible to claim a deduction of these state taxes on your federal return. You must be able to itemize your deductions in order to claim state income taxes.
To be eligible to itemize deductions, the sum of all your deductible expenses must be greater than the standard deduction allotted to your filing status. That means a single taxpayer with a standard deduction of $6,300 must have deductible expenses over $6,300 in order to itemize expenses, and claim state income tax deduction. The eligibility requirements allow you to combine your entire amount of deductible expenses into one sum to meet the standard deduction.
