Finance · Taxes
State Income Tax Overview
Which states have income tax, how rates vary, residency rules, and how to handle multi-state filing.
- State Income Tax Overview
- State Income Tax Overview Guide
- State Income Tax Overview Tips
- State Income Tax Overview Tutorial
- State Income Tax Overview Reference
- 01Nine states have no individual income tax, including Florida, Texas, and Nevada.
- 02State income tax rates range from 0% to over 13%, and some states tax only dividends and interest.
- 03If you work in a state different from where you live, you generally file returns in both states and claim a credit to avoid double taxation.
States with No Income Tax
As of 2025, nine states impose no individual income tax on wages and salaries, making them attractive for high earners and retirees.
| State | Notes |
|---|---|
| Alaska | No income or sales tax; residents may receive an annual dividend |
| Florida | Popular retirement destination; no estate tax |
| Nevada | No income tax; higher sales and property taxes |
| New Hampshire | Taxes investment income (interest and dividends) at 3% — phasing out by 2025 |
| South Dakota | No income tax; low overall tax burden |
| Tennessee | Eliminated investment income tax in 2022 |
| Texas | No income tax; higher property taxes |
| Washington | Has a capital gains tax on gains above $270,000 (7%) |
| Wyoming | No income tax; low population, abundant natural resources |
Warning: Moving to a no-income-tax state doesn't automatically eliminate all tax. Washington's capital gains tax and New Hampshire's investment income tax are examples of targeted taxes that still apply to certain income types.
How State Income Tax Rates Work
States use several rate structures. Progressive states have multiple brackets like the federal system; flat tax states apply one rate to all income.
| State | Structure | Top Rate (2025) |
|---|---|---|
| California | Progressive | 13.3% |
| Hawaii | Progressive | 11.0% |
| New York | Progressive | 10.9% |
| Massachusetts | Flat + surtax | 9.0% on income over $1M; 5% otherwise |
| Arizona | Flat | 2.5% |
| Colorado | Flat | 4.4% |
| Illinois | Flat | 4.95% |
Many states start with your federal AGI or taxable income and make adjustments — adding back deductions disallowed at state level or subtracting state-specific exclusions like pension income or Social Security benefits.
Residency and Domicile Rules
States use two concepts to determine your tax obligations: domicile (your permanent legal home) and statutory residency (spending enough days in a state to trigger resident-level tax regardless of domicile).
- Domicile: The state where you intend to return and remain indefinitely. You can only have one domicile at a time. Changing domicile requires affirmative steps: new driver's license, voter registration, updating estate documents, and spending more time in the new state.
- Statutory resident: Most states tax you as a resident if you maintain a permanent place of abode AND spend more than 183 days in the state, regardless of where you're domiciled.
Warning: High-tax states like New York and California aggressively audit people who claim to have changed domicile. Keep a day count log and document your ties to the new state if you're leaving a high-tax state.
Working in Multiple States
If you work in a state other than where you live, you typically owe income tax to both states. To prevent double taxation, your resident state usually allows a credit for taxes paid to the non-resident state.
| Scenario | Filing Required | Credit Available? |
|---|---|---|
| Live in NJ, work in NYC | NJ resident + NY non-resident | NJ credits NY tax paid |
| Work remotely for CA company (not in CA) | CA non-resident (may apply) | Depends on CA source income rules |
| Travel employee in multiple states | Each state where work performed | Resident state credits all |
Remote work has complicated state taxes significantly. California, for example, taxes income of non-residents who perform services for California-source clients. The rules vary widely by state and should be verified annually for remote workers.
Reciprocity Agreements
Reciprocity agreements between neighboring states allow residents to pay income tax only to their home state even when they work across the border, simplifying filing and avoiding the need to claim cross-state credits.
| State | Reciprocity Partners |
|---|---|
| Maryland | DC, Pennsylvania, Virginia, West Virginia |
| Virginia | DC, Kentucky, Maryland, Pennsylvania, West Virginia |
| Ohio | Indiana, Kentucky, Michigan, Pennsylvania, West Virginia |
| Wisconsin | Illinois, Indiana, Kentucky, Michigan |
| New Jersey | Pennsylvania |
To use a reciprocity agreement, you must file an exemption certificate with your employer so they withhold for your home state only. Without that form, your employer must withhold for the state where work is performed, and you'll need to file for a refund from the work state.
Tip: Reciprocity agreements do not cover all income — they typically apply only to wages. Investment income and rental income may still require a separate non-resident return in the state where the income is sourced.