In a progressive individual or corporate income tax system, rates rise as income increases. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power., while many others do not. Some states tie their standard deductions and personal exemptions to the federal tax code, while others set their own or offer none at all.

• Remember, it’s always a good idea to consult with your tax professional if you have questions about your specific situation.
• Certain laws may be specific to money earned specifically in that state, while others may place a tax on income generated from anywhere.
• While living in a no-income-tax state allows residents to keep more of their paycheck, it’s important to consider the trade-offs.
• Individuals who are self-employed or work remotely should also understand how their tax obligations might change when moving.
• Tech/Business refers to the technology and business environment, including its innovation capacity, entrepreneurship, and competitiveness.
• Property tax is calculated as the product of the tax rate and the assessed value of the property.

Business Insider tells the innovative stories you want to know

The 2025 Tax Foundation’s State Burden Index placed it in the top five for overall state-local burden. If you earn wages in the United States in 2025, your state of residence can swing your effective tax bill from 0 % to more than 14 %. At the top of the spectrum, California taxes income over $1 million at 13.3 %—and adds a 1 % mental-health surcharge, lifting the all-in marginal bite to 14.3 %. Just behind are Hawaii (11 %), New York (10.9 %, plus up to 3.9 % in New York City), and New Jersey (10.75 %).

rates for states with flat income tax systems

Before you relocate, plan your budget or file your taxes, use the tables above to compare your options. Knowing how your state stacks up can help you make smarter financial decisions. state income tax rates It’s important to note that an extension on your federal tax return doesn’t automatically mean an extension on your state deadline.

What to Do if You Owe Back Taxes

• In addition to income tax and sales tax, United States residents also pay property taxes.
• Keep in mind that states with no or lower sales tax may have higher rates in other forms of tax to make up the difference.
• Income taxes are just one of the ways that state governments make revenues for operations – think of things like building schools and repairing roads.
• Some states adjust their tax brackets and rates annually based on inflation, while others may overhaul their tax structure through new laws.
• While most states use a marginal bracketed income tax system similar to the federal income tax, every state has a completely unique income tax code.

Most people who earn income and are residents of a state that imposes an income tax pay state income taxes. South Carolina has the lowest state income tax rate starting at 0.0%. Indiana implemented a slight change to its flat tax rate, reducing it from 3.05% to 3%. The staggered income tax cuts go through 2027, when a Financial Forecasting For Startups 2.9% tax rate will apply. While living in a no-income-tax state allows residents to keep more of their paycheck, it’s important to consider the trade-offs. Essential services like education and infrastructure may receive less funding, and other taxes or costs of living may be higher to compensate.

State Income Taxes: A Spectrum of Approaches

There are nine different gradual income tax thresholds in New York state. The highest level is a whopping 10.9%, though this applies only in rare cases where individuals or collective couples earn at least $25 million. The percentage drops to 9.65% for those who earn between $1,077,550 and $5,000,000, and goes down to a 4% rate for the lowest-earning individuals in the state. 252, enacted in March 2024, New Mexico made notable changes to its tax bracket structure, primarily affecting low- and middle-income households.

State income tax rates impact residents differently depending on their income level, tax deductions, and overall financial circumstances. High earners in states with progressive tax systems may see a significant portion of their income go toward state taxes, while those in no-tax states may benefit from keeping more of their earnings. However, states without an income tax often make up for lost revenue through alternative taxation, such as higher sales taxes or property taxes, which can still Certified Public Accountant affect overall cost of living.