State Income Tax
Income tax levied by individual states on wages, investment income, and other earnings, with rates and structures varying widely across the country.
How It Works
State income taxes add a significant layer to the total tax burden, with rates and structures varying dramatically. As of 2025, 41 states and Washington D.C. levy a broad-based income tax, while 9 states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not tax wages. New Hampshire taxes only interest and dividends, and Washington imposes a 7% tax on capital gains above $270,000. State tax structures fall into three categories: progressive (graduated brackets like the federal system), flat rate (a single rate on all income), and no income tax. California has the highest top marginal rate at 13.3% with 10 brackets, while states like Colorado, Illinois, and others have flat rates ranging from 2.5% to 4.95%. The choice of state can create tax differences of $10,000 or more annually for high earners. A taxpayer earning $200,000 pays zero state income tax in Texas but over $17,000 in California. However, no-income-tax states often compensate with higher property taxes, sales taxes, or fees. Texas, for example, has property taxes averaging 1.60% — nearly double the national average. When evaluating states for tax purposes, consider the total tax burden including income, property, sales, and estate taxes rather than focusing on income tax alone.
Related Terms
No Income Tax States
The nine states that do not levy a state income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
SALT Deduction Cap
The $10,000 federal limit on the total state and local tax deduction, including state income tax, property tax, and sales tax combined.
Effective Tax Rate
The average percentage of your total income that you actually pay in federal income tax, calculated by dividing total tax owed by total income.