State Income Tax Rates
The United States has 41 states plus D.C. that impose a personal income tax — and the variation among them is dramatic enough to meaningfully affect after-tax returns on labor, investment, and retirement income. The 9 no-income-tax states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) attract high earners, retirees, and remote workers who have the geographic flexibility to choose their tax domicile. Among states with income taxes, a growing number have adopted flat rates — a single percentage applied to all income regardless of amount — including Illinois (4.95%), Indiana (3.05%), and Michigan (4.25%). Progressive bracket states range from Massachusetts (5% with a 4% surtax on incomes over $1M) to California (up to 13.3% for high earners), New York (up to 10.9%), and Hawaii (up to 11%). State income taxes are deductible on federal returns, but only up to the $10,000 SALT cap enacted by the TCJA — a limit that significantly reduces the federal offset for high-tax state residents. For high-income taxpayers in California or New York, the combined federal and state marginal rate can exceed 50%. The SALT cap itself is a central issue in 2025-2026 tax legislation, with proposals to raise, eliminate, or permanently extend it in various forms.
Current Law (2026)
41 states plus D.C. impose a personal income tax. Structures range from flat taxes to highly progressive brackets. State income taxes are deductible on federal returns subject to the $10,000 SALT cap.
No Income Tax (9 states)
AK, FL, NV, NH (interest/dividends phased out), SD, TN, TX, WA, WY
Flat Tax States
| State | Rate |
|---|---|
| AZ | 2.5% |
| CO | 4.4% |
| GA | 5.49% (transitioning to flat) |
| ID | 5.8% |
| IL | 4.95% |
| IN | 3.05% |
| KY | 4.0% |
| MI | 4.25% |
| MS | 4.7% (phasing down) |
| NC | 4.5% (phasing down) |
| PA | 3.07% |
| UT | 4.65% |
Highest Top Marginal Rates
| State | Top Rate | Bracket Starts |
|---|---|---|
| CA | 13.3% | $1M+ (+ 1% mental health surcharge) |
| NY | 10.9% | $25M+ |
| NJ | 10.75% | $1M+ |
| OR | 9.9% | ~$125K |
| MN | 9.85% | ~$193K |
| DC | 10.75% | $1M+ |
| VT | 8.75% | ~$229K |
| HI | 11% | $200K |
| WI | 7.65% | ~$280K |
| IA | 5.7% (phasing down) | Flat as of 2026 |
Legal Authority
- State constitutions and tax codes — Each state enacts its own income tax
How It Works
State income tax liability follows a dual nexus rule: you owe income tax in the state where you are legally domiciled (your state of residence) and in any other state where you earn income. Multi-state workers — through business travel, remote work arrangements, or multi-state employment — must generally file in each state and apply credits for taxes paid to other states. Those credits prevent most (but not always all) double taxation; they're calculated on each state's own rules and often offset the full liability when rates differ. The post-COVID expansion of remote work has added complexity: see Remote Work Tax Nexus for how New York's and Connecticut's "convenience of employer" rules can impose tax obligations on employees who never physically work in those states.
Local income taxes add another layer beyond the state rate. New York City imposes a local income tax of approximately 3.9% on top of the New York state rate. Many Pennsylvania localities, Ohio cities, Maryland counties, Indiana counties, and Kentucky cities impose separate local income taxes that residents must track and file independently — often collected through different systems than the state return.
State income taxes are deductible on the federal return as part of the SALT deduction — but only up to the $10,000 combined SALT cap enacted by TCJA. For residents of high-tax states like California and New York, who might otherwise deduct $20,000–$40,000+ in combined state income and property taxes, the cap significantly limits the federal offset. See SALT Deduction Cap for the mechanics and current legislative status.
How It Affects You
If you're considering relocation: State income tax is one of the largest components of the financial case for moving. Moving from California (13.3% top rate) to Texas (0%) on $200,000 of income saves approximately $20,000/year in state tax alone — more than most relocation costs. But state income tax is one factor among many: property tax, cost of living, healthcare access, employer options, and family factors all matter. California's 13.3% top rate kicks in at $1M for single filers, not $200K — the effective rate at $200K is roughly 9-10%. Model your specific income level against your specific destination state before assuming the nominal top rate is what you'd pay.
If you're retiring: State tax treatment of retirement income is dramatically different state-to-state — often more important than the nominal rate. Twelve states don't tax Social Security income at all; many others exempt portions based on age or income. Pension income exemption is highly variable: Illinois exempts all qualified retirement income; New York exempts $20,000 of pension income; most other states have varying partial exemptions or full taxation. If your retirement income is mostly Social Security and pension, moving to a state with "no income tax" (like Texas or Florida) may save less than moving to a state that simply exempts your specific income type.
If you work remotely for an out-of-state employer: State tax nexus for remote workers is the most rapidly evolving area of state income tax law. New York's "convenience of the employer" rule taxes non-NY residents on income earned working for NY-based employers — even if you never set foot in New York. Connecticut and New Jersey have similar rules. If you're a California resident working for a New York company from home, you may owe taxes in both states (with a credit for the lesser amount). This can significantly affect your effective state tax rate. See the Remote Work Tax Nexus page for the state-by-state analysis.
If you own a pass-through business and are considering a state move: Your business income passes through to your personal return — state income tax rates apply to business profits at personal rates in most states. Moving your residency to a zero- or low-tax state while running a business in a high-tax state is more complex than it appears: the business may owe taxes in the state where it operates (based on sales, payroll, and property apportionment), and you may owe taxes in your state of residency plus the business state. The net benefit of a residency move depends heavily on the business-state's apportionment rules and whether your income is sourced in that state. A state tax attorney or multi-state CPA can model the actual net tax reduction before you move — the effective savings are often significantly less than the headline rate difference suggests.
Implementing Regulations
State income taxes are exclusively state law. No federal CFR applies. 26 CFR Part 1 (§ 1.164-1) governs the federal deductibility of state income taxes, subject to the $10,000 SALT cap imposed by the Tax Cuts and Jobs Act.
Pending Legislation
- Continued rate reductions: Many states (IA, MS, NC, GA, AR) are actively phasing down rates or transitioning to flat taxes.
- Millionaire surtaxes: Some states (MA enacted in 2023) are adding surcharges on high-income earners.
Recent Developments
- Multi-state flat tax wave accelerating: A bipartisan movement toward flat or lower-rate income taxes has swept through Republican-led states. Iowa became effectively a flat tax state at 3.8% as of 2025 (phasing from a top rate of 8.98% in 2018). North Carolina is phasing toward 2.49% by 2030 from 4.5% today. Mississippi is phasing toward 3.5% and eventually targeting elimination. Georgia transitioned to a 5.49% flat rate in 2024, phasing toward 4.99% by 2029. Arkansas reduced its top rate to 3.9% in 2024. These changes significantly affect relocation math for high earners considering moving to lower-tax states.
- New Hampshire completed interest/dividend tax phaseout: New Hampshire fully eliminated its Interest and Dividends Tax effective January 1, 2025, making it a true zero-income-tax state (previously it taxed interest and dividend income). This makes NH one of the nine states with no personal income tax — an important update for retirees with significant investment income who've been considering NH for tax planning.
- Massachusetts millionaire surtax in effect since 2023: Massachusetts voters approved a 4% surtax on income (including capital gains) over $1 million in 2022, effective 2023. Combined with the 5% base rate, Massachusetts now taxes high earners at 9% — one of the highest effective rates in the nation for millionaire-bracket income. This is a notable reversal of Massachusetts's historically flat, moderate-rate structure and is driving some high-net-worth resident departures.
- Remote work nexus remains a live issue: Post-COVID, several states — particularly New York — continue to enforce their "convenience of the employer" doctrine, taxing remote workers for days worked outside the state if their employer is based in the state. A NY-based company's employee who moves to Florida but keeps their NY job may still owe New York income tax on most of their income. See Remote Work Tax Nexus for the full state-by-state landscape. This is one of the most underappreciated tax risks in household financial planning today.