Federal income tax is only part of your total tax bill. Forty-one states and the District of Columbia levy their own income tax on top of federal. Rates range from 0% in nine states to over 13% on top earners in California.
State tax affects take-home pay, retirement location decisions, and whether a raise in a high-tax city is as valuable as it appears. Your total marginal rate is federal plus state (plus FICA) on each additional dollar earned.
States with no income tax
Nine states have no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire taxes investment income but not wages.
No income tax does not mean no taxes. These states often have higher property taxes, sales taxes, or fees to fund government services. Texas and Florida have notably high property tax rates.
Moving to a no-tax state for retirement can save thousands annually if you have large taxable retirement withdrawals or pension income. Factor in cost of living, healthcare, and property taxes before relocating.
Progressive vs. flat tax states
Most states use progressive brackets like the federal system, higher income is taxed at higher rates. California has brackets up to 13.3%, New York up to 10.9%, and New Jersey up to 10.75%.
Flat tax states apply one rate to all taxable income: Pennsylvania (3.07%), Illinois (4.95%), Massachusetts (5%), Colorado (4.4%), and others. Simpler, but no benefit from lower brackets on the first dollars earned.
Some cities add local income tax: New York City, Philadelphia, Detroit, and others. City tax stacks on top of state tax for residents.
Remote work and multi-state taxation
Remote workers may owe tax in both their home state and their employer's state, depending on each state's rules. Some states have reciprocity agreements that let you pay only in your home state.
The convenience of the employer rule (used by states like New York) taxes remote workers based on where the employer is located, even if they work from home in another state.
If you work remotely across state lines, track days worked in each state. Some states require part-year resident returns. Self-employed remote workers generally pay tax in their state of residence.
State tax planning tips
State taxes are deductible on federal returns only if you itemize, and the SALT deduction is capped at $10,000. High state tax payers often cannot fully deduct what they pay.
Roth conversions and capital gains harvesting should consider state tax too. Converting a traditional IRA in a high-tax state costs more than converting after moving to a no-tax state.
Military service members have special protections under the Servicemembers Civil Relief Act, home of record rules can simplify state tax for active-duty families.
Estimate your total tax bill
Set your state tax rate in the tax estimator alongside federal wages, deductions, and credits to see combined federal, state, FICA, and take-home pay.
Adjust the state rate to compare scenarios if you are considering a move or remote work arrangement in a different state.