The Ultimate Guide to Income Tax by State

It’s your responsibility to pay income tax by state if you earn a salary as an employee or profits through your own business. However, it can be challenging to compute your total state income tax because each state in the U.S. has its own taxation guidelines.

No matter which state you live in, read our ultimate guide to discover the tax rate ranges and brackets for 2022. Learn the basics of state income tax so you can pay the right employment or business taxes to your state government.

What Are the State Income Tax Requirements?

Every state in the U.S. has different requirements when it comes to state income tax. Study the chart below to find out the 2022 tax rate ranges and income brackets for individual taxpayers.

State Individual Income Tax Rates & Brackets 2022

While these are the general tax rates and income brackets per state, other computation aspects also affect the total amount of your state income tax. These factors include personal exemptions, standard deductions, and federal income tax deductibles. Keep these elements in mind as you compute state income tax.

What the Difference Is Between Federal Tax and State Tax

Both federal and state taxes are legitimate types of taxation in the U.S, but there are crucial distinctions between the two. Check out the table below for an overview of the differences between federal and state taxes:

Government Type

Tax System

Tax Rates

Federal Tax

Paid to federal government

Progressive tax system

10% – 37%

State Tax

Remitted to state government

Graduated or flat rate system, depending on state

0% – 12.3%

The main difference between federal and state taxes is the type of government which requires them. Federal income tax is imposed by the federal government, while state income tax is levied by state governments.

Another dissimilarity between them is that federal taxes generally involve a progressive tax system, where higher tax rates are required for higher income brackets. In contrast, state taxes can have either graduated rates or flat rates, depending on the specific regulations of each state.

Last but not least, federal tax rates are usually higher compared to state tax rates. On one hand, federal tax rates typically range from 10% to 37%. On the other hand, state tax rates can be as little as 0% or as much as 12.3%.

What Else You Need to Know About Income Tax by State

Gaining foundational knowledge on income tax will make it easier for you to make tax filing preparations. Find out more vital information about income tax and state income tax to familiarize yourself with these matters.

What Is Income Tax?

Income tax is a form of taxation that is paid by individuals, for-profit businesses, and corporations who earn income in the U.S. The tax amount is calculated by applying a tax rate to the income amount of each taxpayer. Plus, the taxes must be filed and paid every year before the April 15 deadline arrives.

Together with your payment, you must also submit tax forms and other federal, state, and local tax requirements by the Internal Revenue Service (IRS). State income tax is one of the major types of income taxes in the country.

What Are the Basic Approaches to State Income Tax?

Different states have various approaches when it comes to imposing state income tax on resident and nonresident workers. First, most states utilize a progressive tax approach, which means that the higher taxpayers earn, the higher the tax amount that they’re required to pay. Next, some states use the flat rate system, where the same rate applies to all income amounts. Finally, certain states don’t require residents and workers to pay any income tax at all.

What Are the Marginal Rates for Tax Year 2022?

There are different marginal rates for the tax year 2022 in terms of federal tax and state tax. Based on IRS tax inflation adjustments for 2022, the highest federal tax rate is 37% for individual single taxpayers who earn more than $539,900 each year. In contrast, the lowest tax rate is 10% for single individual taxpayers with an annual income of $10,275 or less.

For state income taxes, the highest rate is 12.3% for individual single taxpayers who earn approximately $625,369 every year. On the other end of the spectrum, the lowest tax rate is 0% for single individual taxpayers with $25,000 and below annual income.

How Can I Compute State Income Tax?

There are different methods you can use to calculate the total amount of your state and federal income taxes:

Manual Computation

You can manually compute your taxes using a calculator or spreadsheet program. Just multiply your income by the tax rates, then subtract the personal exemptions, standard deductions, and federal income tax deductibles. Just be aware that tax computation can be a complex process, which is why it’s a good idea for you to read how to payroll calculation guides and similar instructional articles to reduce the risk of calculation errors.

IRS Free File

The IRS provides a free online tool called IRS Free File for taxpayers like you. It simplifies the way that you prepare and file your federal tax income through guided tax preparation at the IRS partner site, as well as free fillable forms. Take note that this solution is only available for federal tax planning so you have to find another alternative for state tax computation.

Tax Software

You have the option of using tax software to streamline the way that you calculate your taxes and fill up tax forms. There are free and paid tax programs that you can choose from, according to your tax needs and budget. You can go for basic software if you are an individual taxpayer, but you can go for more advanced solutions if you have corporate requirements.

Tax Professional Services

If you can afford it, you can hire a tax professional or agency to complete your tax computations, forms, and filing for you. While it’s a smart option for you if you are an employee, it’s an even more important investment for you if you own a business. Tax experts specialize in tax services so they can ensure that you promptly and properly meet all the tax requirements of the federal and state government so that you can continue to operate your for-profit organization.

Do Small Businesses Pay State Income Taxes?

Yes. Small businesses in the U.S. are required to pay state corporate taxes. Take note that the corporate tax rates by state 2022 are different from the state income tax rates for individual employees which we discussed in this guide. Keep this in mind if you are planning to compute DIY payroll taxes for your own business.

Frequently Asked Questions (FAQs) for Income Tax by State

State income tax is one of your essential obligations if you have a paying job or own a for-profit business. Learn the answers to basic questions about income tax by state to get ready for the filing and payment process.

What Is Income Tax by State?

State income tax is a type of income tax that is collected by the state government of the U.S. While tax regulations vary from state to state, these state taxes are typically applicable to residents and nonresidents who earn state-sourced income. At present, 42 states plus Washington, D.C. impose income tax by state. Take note that New Hampshire only levies state tax on dividends and interest income.

Am I Required to Pay Income Tax by State?

You are required to pay state income tax if you are earning income in the U.S, unless you live in a state that doesn’t impose this kind of tax. For example, income tax by state may be deducted from your salary if you are a full-time or part-time worker. Aside from this, you need to remit for-profit business taxes if you are gaining income as an entrepreneur. The exact tax filing procedure may differ based on whether you are an employee or employer.

What Factors Affect the Amount of Income Tax by State?

There are three major factors which have an impact on the total amount of your state income tax. The first component is how much you are earning from your job or business because it determines which tax bracket you belong to. Next, the second aspect is the state where you currently live and work. After all, each state has its own tax rate range. Finally, the third factor is a combination of standard deductions, personal exemptions, and federal income tax deductibles.

What Are Tax Brackets?

Tax brackets are categories based on a range of incomes which assign the state or federal tax rate that is applicable to you. Your tax bracket will be determined by how much your taxable income is. It will also be influenced by what your marital and filing statuses are, if you are single, married filing separately or jointly, or head of your household. Tax brackets are part of the progressive tax system, which means the higher the income, the higher the tax rates.

Which States Don’t Impose State Income Tax?

There are eight states which don’t levy state income taxes on resident and nonresident income earners. These states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Aside from this, New Hampshire doesn’t impose income tax by state on regular income, although it does so on dividends and interest income.

Bottom Line on Income Tax by State

You must pay state income tax on a regular basis as long as you are earning income in the U.S., whether you are an employee working for a company or an entrepreneur operating your own business. Nevertheless, computing your annual income tax by state can be a daunting process, especially since different states have varying tax requirements.