These 8 states don’t have an income tax. Does yours make the list?
Clare MulroyTaxes may seem confusing, but they don’t have to be.
We’re almost in the monthslong period when the Internal Revenue Service is accepting tax returns, and it’s essential to understand what forms to fill out, deadlines to meet and acronyms to know. We’re breaking down your common questions and sharing everything you need to know to file your taxes in 2024.
Wondering how taxes break down on a state and federal level? Here’s your guide to the state income tax, and whether or not you need to pay it.
Does my state have an income tax?
The federal government levies an income tax on businesses and individuals to fund its programs and services. In fiscal 2024, individual and corporate income taxes will make up 66% of the federal government’s total revenue.
But there are also state income taxes, which finance your state’s budget to pay bills and fund statewide programs. Most states have an income tax, but they don’t all collect them the same way.
States with no state income tax
These states have no income tax:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Wyoming
- Washington: Does not have a traditional income tax, instead levying a business and occupation tax, and a public utility tax
New Hampshire does not tax earned income and is currently phasing out a tax on interest and dividend income. It will be repealed for taxable periods after 2026.
States with a flat income tax rate
Some states have a flat income tax rate, meaning every resident with a taxable income pays the same percentage of that income, regardless of what they earn. These states are:
- Arizona: 2.5%
- Colorado: 4.40%
- Georgia: 5.49%
- Idaho: 5.8%
- Illinois: 4.95%
- Indiana: 3.23%
- Kansas: 5.15%
- Kentucky: 5%
- Michigan: 4.05%
- North Carolina: 4.5%
- Pennsylvania: 3.07%
- Utah: 4.65%
The rest of the 50 states have a graduated rate income tax, which means the tax rate increases as income rises.
Types of income tax
Individual income tax: This is also called personal income tax and is generally imposed by the state and placed on an individual's wages, salary and other forms of income. Depending on your situation, certain exemptions, deductions or credits could make you eligible to reduce or not pay taxes on your income.
Business income tax: This tax is applied to corporations, small businesses and the self-employed. A company would disclose its business income and then subtract operating and capital expenses. The difference would be the company's "taxable business income."
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Contributing: Olivia Munson