Picture two software developers, identical salaries, both earning $95,000. One lives in Austin, Texas. The other lives in Portland, Oregon. Their federal tax bills are the same. But the developer in Portland owes about $7,500 to the state of Oregon. The one in Austin owes $0 in state income tax.
That's a $7,500 annual gap from geography alone. Over a 30-year career, invested at average market returns in something like Vanguard's VTI, that difference compounds to more than $750,000.
Where you live is a tax decision whether you think of it that way or not.
30-Second Summary: Forty-one states levy a personal income tax, with structures ranging from flat rates (like Colorado's 4.40%) to highly progressive brackets (like California's top rate of 13.3%). Nine states have no income tax on wages: AK, FL, NV, NH, SD, TN, TX, WA, WY. Your state tax is a layer on top of federal income tax and can significantly affect your take-home pay.
The Three State Tax Systems
States take one of three approaches to taxing income:
| System | How It Works | Examples |
|---|
| No income tax | No tax on wages or ordinary income | TX, FL, WA, NV, AK, WY, SD, TN, NH |
| Flat tax | One rate on all taxable income | CO (4.40%), IL (4.95%), PA (3.07%) |
| Progressive brackets | Rates rise with income | CA (1%–13.3%), NY (4%–10.9%), OR (4.75%–9.9%) |
No-income-tax states rely more heavily on sales taxes, property taxes, or natural resource revenue. Texas has no income tax but charges some of the highest property taxes in the country. Washington has no income tax but has one of the highest sales tax rates. There's no free lunch; states just fund themselves differently.
Flat-tax states keep it simple: one rate for everyone. Fifteen states now use a flat tax, and the trend has accelerated in recent years. [1] Georgia moved to a flat 5.39% rate. Louisiana dropped to a flat 3.0%. Arizona cut to 2.5%.
Progressive states use brackets, similar to the federal system. California leads with 10 brackets and a 13.3% top rate (including a 1% Mental Health Services surcharge on income over $1 million). Hawaii reaches 11%. New York tops out at 10.9%. [1]
The Nine No-Income-Tax States
| State | Income Tax? | Note |
|---|
| Alaska | No | No sales tax either (but local sales taxes exist) |
| Florida | No | Heavy reliance on sales and tourism taxes |
| Nevada | No | Revenue from gaming and sales tax |
| New Hampshire | No* | Phased out its tax on interest/dividends by 2025 |
| South Dakota | No | Revenue from sales tax and tourism |
| Tennessee | No | Phased out its Hall Tax on investment income by 2021 |
| Texas | No | Among the highest property taxes nationally |
| Washington | No** | Taxes capital gains above $270,000 at 7% (passed 2021) |
| Wyoming | No | Revenue from mineral extraction |
Source: AARP [2]
*New Hampshire fully repealed its interest and dividends tax effective 2025. **Washington technically has no "income tax," but its capital gains tax functions as one for high earners. The distinction is legally contentious.
Living in a no-tax state doesn't mean low taxes. You'll likely pay more in property tax, sales tax, or both. Florida residents pay no income tax but face a 6% state sales tax (plus local surcharges up to 2.5%). A family buying $40,000 worth of taxable goods annually pays $2,400+ in sales tax, which isn't nothing.
Highest and Lowest State Tax Rates
Highest top marginal rates:
- California: 13.3%
- Hawaii: 11.0%
- New York: 10.9%
- Oregon: 9.9%
- Minnesota: 9.85%
Lowest non-zero rates:
- Arizona: 2.5% (flat)
- North Dakota: 2.5% (flat)
- Indiana: 2.95% (flat)
- Louisiana: 3.0% (flat)
- Pennsylvania: 3.07% (flat)
Source: Tax Foundation [1]
Top marginal rates can be misleading. New York's 10.9% rate only kicks in at $25 million in taxable income. At $80,000, a New York single filer's effective state rate is closer to 5%.
Worked Examples
Example 1: Flat Tax State (Colorado)
Aisha, single, $72,000 taxable income.
Colorado rate: 4.40%
State tax: $72,000 × 4.40% = $3,168
Simple. No brackets, no lookup tables. Just income times rate.
Example 2: Progressive State (New York)
Derek, married filing jointly, $130,000 state taxable income.
| Bracket | Income | Rate | Tax |
|---|
| 4.0% | $17,150 | 4.0% | $686 |
| 4.5% | $6,450 | 4.5% | $290 |
| 5.25% | $4,300 | 5.25% | $226 |
| 5.5% | $102,100 | 5.5% | $5,616 |
| Total | $130,000 | | ~$6,818 |
Effective state rate: ~5.2%
Derek is "in the 5.5% bracket" but pays 5.2% overall. The same progressive dynamic as federal brackets applies at the state level.
Example 3: Mid-Year Move (California to Texas)
Nora earns $90,000 and moves from San Francisco to Dallas on July 1.
California taxes income earned while a California resident. Roughly half the year ($45,000 of income) is subject to California tax. The Texas half owes nothing.
California tax on ~$45,000: approximately $1,200 (after state standard deduction and lower brackets).
Texas tax: $0.
Total state tax: ~$1,200, compared to ~$4,100 had she stayed in California all year.
Timing a move matters. California is aggressive about residency audits. (Anyone who's been through one will tell you: it's not fun.) If you move, update your employer immediately, register to vote in your new state, get a new driver's license, and document the change thoroughly.
Multi-State Filing and Remote Work
If you live in one state but earn income in another, you'll often need to file in both:
- Nonresident return in the state where you worked (taxing only income from that state)
- Resident return in the state where you live (taxing all income, but usually giving a credit for taxes paid to the other state)
Most states prevent double taxation through credits or reciprocal agreements. But edge cases exist. New York and a handful of others use a "convenience of the employer" rule that can tax remote workers based on where their employer is located, not where they physically sit.
Remote work has made this messy. A New York company with a remote employee in New Jersey may trigger filing requirements in both states. If you work remotely across state lines, check both states' rules or consult a tax professional.
State EITCs: Extra Credits You Might Miss
Thirty-one states plus Washington, D.C. offer their own version of the Earned Income Tax Credit. [3] These are typically calculated as a percentage of the federal EITC and can be worth hundreds to thousands of dollars.
If you qualify for the federal EITC and live in a state with a matching credit, you may be leaving money on the table if you don't file a state return.
Your Next Move
- Identify your state's system. No tax? Flat? Progressive? The Tax Foundation's state rates page has every state.
- Estimate your state tax. Flat-rate states: multiply income by rate. Progressive states: walk through brackets like the federal system.
- Check for state-specific deductions and credits. State EITCs, property tax credits, and education deductions vary widely.
- If you moved mid-year or work across state lines, file in both states and claim the credit for taxes paid to the non-resident state.
- Use our tax bracket calculator to see how combined federal and state taxes affect your take-home pay.
For the federal side of the equation, see our federal income tax brackets guide. And if you're weighing the total tax load from payroll taxes as well, our payroll tax vs. income tax comparison covers the full picture.
References
- Tax Foundation. (2025). State Individual Income Tax Rates and Brackets. https://taxfoundation.org/data/all/state/state-income-tax-rates/
- AARP. (n.d.). 9 States With No Income Tax. https://www.aarp.org/money/taxes/states-without-an-income-tax/
- IRS. (n.d.). States and Local Governments With Earned Income Tax Credit. https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/states-and-local-governments-with-earned-income-tax-credit
