Category: 

Do All U.S. States Have Income Taxes?

Texas does not collect state income tax.
Alaska is one of seven states that does not collect state income tax.
Florida does not levy an income tax.
Some U.S. states levy no additional taxes aside from what individuals pay to the federal government.
Article Details
  • Written By: Sherry Holetzky
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 July 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article

Since much legislation throughout the United States is fairly uniform, people may assume that laws concerning income taxes are as well. However, every state is not the same when it comes to taxation, especially in the case of income taxes. Some states do not levy any income taxes, at least not any state-level taxes in addition to federal income taxes. Others simply have a different method for defining “income.”

For example, Tennessee and New Hampshire only charge income taxes on dividends and interest. Moving to one of these states may be appealing to those who want to pay less in income taxes and would like to keep more of their hard-earned money. They’ll only have to pay federal taxes on wages or other earnings.

Forty-one of the fifty states do collect income taxes on wages and other monies deemed to be income. Of the forty-one, thirty-five of them base the rate of income taxes on a percentage of what you owe in federal taxes or using a person’s gross income to determine the amount owed to the state. Some use taxable income, the amount left after allowed deductions and expenses, to determine the amount of state income taxes.

Ad

The states that do not collect income taxes are as follows: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. This fact may make these seven states particularly attractive to people who are considering relocating or retiring. Having to pay taxes on Social Security may seem like an insult to some, which would be further compounded by also having to pay state income taxes on your own money.

Another important issue to consider is whether you choose to take standardized deductions or to itemize different exemptions when it comes to income taxes. You may need the assistance of a professional in order to file appropriate state returns, which can differ vastly from federal returns. Tax codes can be confusing, although there are online services and software available to help you sort through your income taxes, if you’d like to give it a try before consulting a professional.

On the other hand, you may just want to file electronically in order to get the process going more quickly, especially if you are expecting a refund. Again, state laws will vary, so if you file electronically, check to see if you also need to send a hard copy via regular mail when you file your state income taxes.

Ad

Discuss this Article

Perdido
Post 11

I always seem to forget about state taxes, until I sit down to do my federal taxes. I use a computer program for this, and it always asks me if I'm ready to figure my state taxes after I'm done with the federal. Otherwise, I probably would be in trouble!

The bad thing about the state I live in is that we are behind the times technologically. I cannot file my state taxes electronically, so I have to print out the forms and wait longer for my refund.

I always file my federal taxes electronically, because I like getting the refund deposited directly into my bank account. If my state ever advances and gets with the times, maybe I can do the same for state taxes.

lighth0se33
Post 10

@seag47 – You can use an online income tax estimator to help you plan how much to set aside. This is what I did, and I found out that it was pretty accurate when tax time arrived.

I also live in a state that taxes my income, and I wanted to be fully aware of how much I could potentially owe. There is nothing worse than being blindsided by a huge debt to your government.

I have been tempted many times to move to Tennessee. It is only two hours from where I live, and if I didn't have such an awesome job here, I probably would make the move to save money. For now, I remain here, estimating my state taxes throughout the year.

seag47
Post 9

This is my first year working as a self-employed independent contractor doing graphic design work, and it will be interesting to see how much I have to pay in state taxes. I have always lived in Mississippi, and they have always charged state tax. I have been putting aside a certain percentage of my money in a savings account to pay federal taxes, and I hope I have overestimated the amount enough that the money will cover state taxes, also.

I know that when my husband worked for himself, the amount he had to pay in state taxes was far less than the amount he owed in federal taxes. This gives me hope that perhaps I have set enough aside. Also, since I am in a low-income tax bracket, I think that the state tax should be pretty low.

andee
Post 8

It is easy to grumble and complain about taxes, but I have a hard time seeing how it will ever change.

My son-in-law is from Europe and it is interesting to hear him talk about their tax system. They have 'free' health care and education, but their taxes are very high.

Also their fuel tax is way more than what we are used to paying here in the United States. I really don't know if their system works any better than our system. It seems to be a matter of what you are used to.

Now that he is living and working in the states, learning about all the proper income tax information is a whole new ballgame for him.

SarahSon
Post 7

There are a lot of online sites that give you some helpful tools when it comes to figuring your taxes.

Using an online income tax calculator can give you a good idea of what percentage of your money is going where.

Sometimes this can be pretty discouraging when you look at the actual numbers. Many people look forward to tax time because they are used to getting a big refund.

I would rather get a refund than have to pay in more money. It still bothers me when I think that I have to work until around the end of May every year just to pay my taxes.

When I get closer to retirement I will look a little closer at the list of states that don't make you pay a state tax. In the mean time, I will continue along as I always have, and hope I have enough money set aside when I am ready to retire.

myharley
Post 6

I have paid state income taxes all of my life. When my parents were trying to decide between Arizona or Texas as a place to retire, this was one of the biggest factors in their decision.

Since the state of Texas doesn't have this tax, it made a lot of sense to move there. I also know of another couple who sold their house, bought an RV and toured around the country for a few years.

They needed to have a permanent mailing address, so chose South Dakota as their permanent state of residence. This was based on the favorable tax situation.

Paying taxes and filling out income tax forms is never an enjoyable process. If you can save a percentage of your income by not paying a state tax, that makes a lot of sense to me.

KaBoom
Post 5

@strawCake - I think I'd rather just pay income taxes than live somewhere as cold as Alaska, but that's just me.

I'm actually really surprised the tax laws aren't uniform throughout the states. I always forget that many states have different laws.

I always knew that sales tax is different in certain states. In fact, one of the states that borders mine doesn't charge sales tax, so a lot of people travel there to do major shopping. However, you have to weigh your savings against the cost of gas if you're going to do that.

strawCake
Post 4

So that's why so many people retire to Florida! I never thought about how taxing (pardon the pun) it must be to have to pay taxes on your social security money.

Anyway, my state has fairly high income taxes, and I have to say it really stinks. And, if you live in some area, you pay federal income taxes, state income taxes, and county/city income taxes. After all that, who has a paycheck left?

I've actually been considering making a move to somewhere that doesn't have income taxes. And hey, if you move to Alaska, they pay you a dividend every year to live there! Seems awesome.

Azuza
Post 3

@dfoster85 - You make a really good point about states with no income tax making up for it somehow. I'm sure you're right about most of those states. After all, how can a state run itself if it doesn't have any income?

However, I think Texas may be an exception to this.

I was reading an article a few days ago about the most affordable places to live, and a lot of towns in Texas ranked very high on the list. I doubt sales tax in Texas is that high if they supposedly have such a low cost of living.

EdRick
Post 2

@dfoster85 - What really caught my eye in the article was the states that collect taxes only on interest and dividends. See, the federal tax code taxes these, and capital gains, at much lower rates than your income. We think that the wealthiest Americans pay thirty-some percent of their income in taxes, but that's not true. It's the upper middle class, doctors and lawyers and so on, who really get soaked.

People with seven and eight figure often usually make most of their money not from wages, but from investments, and so they actually wind up paying much lower tax rates - maybe ten or twelve percent total on all that money.

So it's kind of refreshing to see states that tax only "rich people's money."

dfoster85
Post 1

I've never had too much trouble with income tax preparation; I use inexpensive software for the federal and often do the state taxes by hand (or using fillable online forms). They're not usually that complicated, and I should know - I have lived in several different states. In fact, I once had to complete three separate state tax returns for the same year (don't even ask).

It's worth noting that states with income taxes generally have much higher sales tax, as that's how they make the money they need. If you have a very high income from wages, you would do well in one of those states. But if you make little money and spend most of it, you might actually be *worse* off - you might wind up paying such a higher percentage of your income on sales tax that you would have been better off being in a low income tax bracket!

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email