State tax return for individuals

State income taxes can vary considerably from one state to another. In fact, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no income tax at all. New Hampshire and Tennessee tax only interest income and dividends, not earned income from salary and wages, and Tennessee is in the process of repealing even this taxation by 2022.¹

All the other states have either flat or progressive income tax systems. A flat tax system is one that applies a single rate to all levels of income. Nine states use this method as of 2019: Colorado (4.63%), Illinois (4.95%), Indiana (3.23%), Kentucky (5%), Massachusetts (5.05%), Michigan (4.25%), North Carolina (5.25%), Pennsylvania (3.07%), and Utah (4.95%).

Most states that impose income taxes, however, use progressive tax systems, where higher levels of income are taxed at a greater percentage rate, as is the case with the federal income tax system. Some states base their marginal tax brackets for this purpose on the federal tax code, but many states implement their own. Some adjust their brackets annually to keep pace with inflation, as the federal government does, while others do not.

Hawaii has 12 tax brackets as of 2019, while Kansas and Rhode Island have only three each. California’s progressive tax system has the highest top tax rate of 13.3%, which applies to singles with taxable incomes over $1 million and married couples with incomes over $1,145,960. North Dakota, at 2.9%, and Arizona, at 4.54%, are among the states with the lowest top tax rates.