State income taxes are similar to your federal income tax but the money you’re taxed goes to the infrastructure and services of your state. But this doesn’t mean that just because you’re paying state income tax, your state will provide you with more services. Some states simply don’t need state income taxes because they don’t need it.
Instead of state income taxes, states impose a high rate of sales tax and other types of taxes to make up for it. For example, Nevada has a high sales tax and sin taxes which are an extra tax on alcohol, tobacco products, and gambling. With revenue just from that, Nevada simply doesn’t need state income tax and therefore, it doesn’t ask for it.
Although the complete reasoning behind why states may not impose state income tax may differ, that’s the core behind state income taxes.
States without income tax
There are a total of 9 states that currently don’t have state income taxes. The list used to contain 7 states with the exception of Tennessee and New Hampshire but after the recent legislation, both states now do not have a state income tax. Before the legislation passed, both Tennessee and New Hampshire did not tax wages but as of 2020, both states no longer have a state income tax.
As of 2020, other than Tennessee and New Hampshire, the following states do not impose a state income tax.
Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming
All of the states above don’t have income taxes but how much in sales tax and other types of taxes they pay is different than one another. For example, while Alaska’s tax burden of personal income is 5%, Wyoming’s is about 7.5%. You can see more about the percentage of tax burdens for each state from this website.
States with income tax
The states outside of these nine all have income taxes to a certain degree. North Dakota has the lowest state income tax which is 1.1% to 2.9%. While some state’s income tax rate depends on the income, some states have a flat tax rate. As of 2020, Illinois, Indiana, Kentucky, Michigan, North Carolina, and Pennsylvania have a flat tax rate which ranges from 3.23% to 5.25%.
You can estimate your state income taxes by entering the necessary amounts at our front page.