State Income Tax Information
Residents in 43 states and the District of Columbia must pay federal and state personal income taxes. The tax rate, tax bracket, deductions and exemptions vary from state to state. Like federal income taxes, state income taxes are collected from gross earnings, and they are used to help fund the state government. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming are the only states that do not collect income taxes.
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Tax Rates
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Thirty-four states have multiple tax rates. In 2010 the top marginal tax rate varied from a low of 3 percent to a high of 11 percent, according to "State Individual Income Tax Rates" by Carol Rosenberg and Kim Rueben. California, Hawaii, New Jersey, Oregon and Rhode Island have the highest income taxes, at between 9.9 and 11 percent.
Twelve states have a top marginal tax rate of between 3 and 5 percent. Those states are Alabama, Arizona, Colorado, Illinois, Indiana, Michigan, Mississippi, North Dakota, New Hampshire, New Mexico, Pennsylvania and Utah. Colorado, Illinois, Indiana, Massachusetts, Michigan, New Hampshire, Pennsylvania, Tennessee and Utah use a single tax rate for all income levels.
Tax Brackets
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Most states use federal adjusted gross income to determine state taxes, although in New Hampshire and Tennessee only the interest and dividends from income are taxed. Hawaii has the most tax brackets, at 12, followed by Missouri with 10 and Ohio and Iowa at nine each. Most other states have brackets ranging from three to seven.
In addition to the standard tax brackets, eight states established a tax bracket for those considered to be high-income taxpayers. It's called a "millionaire's tax" because the first state that established the tax, California, established it for taxpayers with income of $1 million or more. The other states with a "millionaire's tax" are Connecticut, Hawaii, Maryland, New Jersey, New York, Oregon and Wisconsin.
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Tax Deductions
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Most states offer standard deductions. These deductions range from a low of $1,500 to $2,000 in Maryland to a high of $13,000 in Connecticut. States that follow the standard federal deduction rate are Colorado, Idaho, Minnesota, Missouri, Nebraska, New Mexico, North Dakota, South Carolina, Utah and Vermont. For the 2010 tax year, the federal deduction is $5,700 for a single taxpayer. The states that do not have a standard deduction are Illinois, Indiana, Massachusetts, Michigan, New Hampshire, New Jersey, Ohio, Pennsylvania, Tennessee and West Virginia.
Tax Credits
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Tax credits are subtracted from tax liabilities. Credits are offered in most states in a number of categories. Forty-two states offer credits for taxes paid to other states, 38 states offer credits for energy/environmental causes, 37 states offer credits for enterprise/jobs/business-related causes, 28 states offer credits for child/dependent care, 23 states offer credits for low-income individuals, 21 states offer credits for elderly or disabled individuals, 21 states offer credits for earned income and 20 states offer credits for property taxes/rent/homesteads.
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References
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