How Does State Income Tax Work?

Other states have a progressive tax rate, which rises with income. Thirty-four states fall into this category. For example, California has a personal income tax rate of 1 percent at the lowest level of income up to $7,165 and 10.3 percent at the highest income bracket of $1,000,000 or more. Some other states have no personal income tax whatsoever while others tax only investment income. For a full list of state personal income tax rates by state, see a link in Resources below.

How it is Collected

For most people who live in states that have a personal income tax, the tax is deducted from their paychecks. When you file a tax return at tax time, you can get some of that back as a refund if you overpaid or if you are due a refund because of certain tax credits or deductions. The self-employed or those who have other forms of earned and investment income pay their income tax when they file their tax returns.

States With no Personal Income Tax

Nine states do not have a personal income tax. These are Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming. All but one of these states have some form of tax on business, investment and corporate income. Nevada has neither corporate nor business income tax, as most of its revenue comes form taxes on gambling.

Resources

• State Income Tax Rates
• State Tax Authorities Links
• Best and Worst States for Taxes