Know your state: Here’s where you have to pay state income tax
Taxes may seem confusing, but they don’t have to be. We’re officially 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 2023.
Wondering how taxes break down on a state and federal level? Here’s your guide to 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 2023, individual and corporate income taxes will make up 59% 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 taxing capital gains of income of high earners.
New Hampshire does not tax earned income and is currently phasing out a tax on interest and dividend income that will be repealed for taxable periods after 2026.
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 not pay taxes on your income.
Business income tax: This tax is applied to corporations, small businesses and the self-employed. The company, its owners or shareholders would disclose their business income and then subtract operating and capital expenses. The difference would be the company’s “taxable business income.”