**GUIDE TO TAXABLE AND NONTAXABLE INCOME
**GUIDE TO FEDERAL TAX INCOME (CALCULATOR)
• Alabama: 5% on income over $3,000
• Alaska: No income tax
• Arizona: 4.54% on income over $150,000
• Arkansas: 7% on income over $32,600
• California:10.55% on income over $1 million
• Colorado: flat 4.63% of federal taxable income
• Connecticut: 6.5% on income over $500,000
• District of Columbia: 8.5% on income over $40,000
• Delaware: 6.95% on income over $60,000
• Florida: No income tax
• Georgia: 6% on income over $7,000
• Hawaii: 11% on income over $200,000
• Idaho: 7.8% on income over $26,418
• Illinois: flat 3% of federal AGI with modifications
• Indiana: flat 3.4% of federal AGI with modifications
• Iowa: 8.98% on income over $63,315
• Kansas: 6.45% on income over $30,000
• Kentucky: 6% on income over $75,000
• Louisiana: 6% on income over $50,000
• Maine: 8.5% on income over $20,150
• Maryland: 6.25% on income over $1 millio
• Massachusetts: flat 5.3% on all income
• Michigan: flat 4.35% of federal AGI with modifications
• Minnesota: 7.85% on income over $74,780
• Mississippi: 5% on income over $10,000
• Missouri: 6% on income over $9,000
• Montana: 6.9% on income over $15,400
• Nebraska: 6.84% on income over $27,000
• Nevada: no income tax
• New Hampshire: 5% on interest and dividend income. Wages are not taxed.
• New Jersey: 8.97% on income over $500,000
• New Mexico: 4.9% on income over $16,000
• New York: 8.97% on income over $500,000
• North Carolina: 7.75% on income over $60,000
• North Dakota: 4.86% on income over $373,650
• Ohio: 5.925% on income over $200,000
• Oklahoma: 5.5% on income over $8,700
• Oregon: 11% on income over $250,000
• Pennsylvania: flat 3.07% on all income
• Rhode Island: 9.9% on income over $373,650
• South Carolina: 7% on income over $13,700
• South Dakota: no income tax
• Tennessee: 6% on interest and dividend income. Wages are not taxed.
• Texas: no income tax
• Utah: flat 5% on all income
• Vermont: 8.95% on income over $373,650
• Virginia: 5.75% on income over $17,000
• Washington: no income tax
• West Virginia: 6.5% on income over $60,000
• Wisconsin: 7.75% on income over $225,000
• Wyoming: no income tax
Introduction:
State income tax is a tax levied by the state on personal income earned by individuals and businesses. Almost all states in the USA have an income tax system, and the rates vary from state to state. The income tax is a significant source of revenue for the state governments. The tax revenue collected by states goes towards funding different programs such as healthcare, education, transportation, and public safety. In this article, we will explore state income tax rates, the states with the highest and lowest rates, the taxation methodology, and how these rates impact the economy and individuals.
State Income Tax Rates:
State income tax rates differ from one state to another, with some states having no income tax at all. California has the highest marginal tax rate of 13.3%, while Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have state income tax.
The marginal tax rate is the highest tax rate applicable to the highest income bracket. For example, if the marginal tax rate is 10%, it means that individuals earning above a certain threshold will be taxed at that rate on every additional dollar they earn.
Currently, there are 41 states with state income tax, with 33 of them having a progressive income tax rate system. A progressive tax system is whereby the tax rate increases as income increases, with the highest earners paying a higher percentage.
The remaining eight states with a flat tax rate system tax all income earners at the same rate regardless of income level, while some states have a hybrid system.
States without Income Tax:
The states without income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. These states have other revenue sources that fund public services and programs that income tax usually funds in other states.
· Alaska: Alaska is unique since it relies on its oil and gas reserves to fund its state budget rather than income tax.
· Florida: Florida also relies on other sources such as sales tax, real estate taxes, and tourism to fund its state budget.
· Nevada: Nevada funds its state budget through sales and gaming taxes.
· South Dakota: South Dakota has no state income tax and relies on sales tax, excise tax, and property tax to fund its state budget.
· Texas: Texas does not have an income tax and relies on sales tax and property tax to fund its state budget.
· Washington: Washington relies on sales tax, property tax, and business taxes to fund its state budget.
· Wyoming: The state does not have income tax and relies on mineral revenues, property tax, and sales taxes to fund its state budget.
States with the Highest Income Tax Rate:
The states with the highest income tax rate are California, Hawaii, New Jersey, Oregon, and Minnesota.
· California: The state has a progressive income tax rate, and the highest earners of over $1 million are taxed at 13.3%.
· Hawaii: Hawaii’s tax rate ranges from 1.4% to 11%, with the highest earners in the state subject to the 11% tax.
· New Jersey: In New Jersey, the highest earners are taxed at 10.75%, and the rate is applied on all income over $5 million.
· Oregon: Oregon tax rate ranges from 4.75% to 9.9%, with the highest earners subject to the 9.9% rate.
· Minnesota: In Minnesota, the highest earners are taxed at 9.85%.
States with the Lowest Income Tax Rate:
The states with the lowest income tax rates are Pennsylvania, North Dakota, Indiana, Michigan, and Arizona.
· Pennsylvania: Pennsylvania has a flat tax rate of 3.07%, and all earners regardless of their income are taxed at the same rate.
· North Dakota: The state has a flat tax rate of 2.9% for all taxpayers.
· Indiana: Indiana has a flat tax rate of 3.23% for all taxpayers.
· Michigan: Michigan has a flat tax rate of 4.25% for all taxpayers.
· Arizona: Arizona has a flat tax rate of 4.5% for all taxpayers.
Taxation Methodology:
State income tax is placed using three different methodologies. The three methodologies used include Federal Tax-Based, Modified Federal Tax-Based, and Independent Method.
· Federal Tax-Based Method: This methodology is used in most states and involves applying the same rules and tax rates that the federal government applies to taxpayers.
· Modified Federal Tax-Based Method: The modified federal tax-based methodology allows the state to adopt federal tax provisions that best suit the state while modifying others that do not fit well, as is the case in many states.
· Independent Method: States that use independent methods have entirely independent tax codes separate from the federal tax code.
The Impact of State Income Tax Rates on the Economy:
State income tax rates have different impacts on the economy. Some of the impacts include:
· Economic Growth: High state income tax rates have been shown to reduce economic growth due to a reduction in consumer and business spending.
· Migration: The taxation rate and methods can lead to individuals and businesses moving from one state to another to take advantage of lower taxes.
· State Revenue: State income tax rates impact the revenue that states collect to finance public services and programs.
· Tax Burden: State income taxes can burden taxpayers and impact their ability to spend money on other services.
Conclusion:
State income tax rates vary from one state to another, with some states having no income tax at all. The state income tax revenue is used to fund public services and programs such as healthcare, education, transportation, and public safety.
The tax rates and methodology have different impacts on the economy, with some states benefiting from high state income tax rates, while others benefit from low tax rates. States with high tax rates have been shown to benefit from increased revenue, while states with low tax rates benefit from increased economic growth.
