What Is State Income Tax?

State income tax is a tax an individual U.S. state charges on income earned by its residents (and often nonresidents working within its borders), collected separately from federal income tax to fund state-level services like schools, roads, and Medicaid. Rates and rules vary enormously by state — nine states charge none at all.

Every paycheck in the United States is potentially subject to two layers of income tax: federal, which is the same everywhere, and state, which varies wildly depending on where you live and work. Unlike the federal system, there's no single national formula — each state legislature sets its own rates, brackets, deductions, and exemptions, which is why take-home pay for the same salary can differ by thousands of dollars depending on your zip code.

Flat vs. Progressive State Systems

States generally pick one of two structures. A flat tax state applies a single percentage to all taxable income regardless of amount — Colorado uses 4.4%, for example. A progressive state uses brackets, taxing higher slices of income at higher rates, much like the federal system — California's top marginal rate reaches 13.3% for its highest earners.

Worked Example

Say you earn $70,000 in taxable income. In Texas (no state income tax), you owe $0 in state tax on that income. In Colorado (flat 4.4%), you'd owe roughly $3,080. In a progressive state like New York, layered brackets might push your effective state tax closer to $3,500–$4,000, depending on filing status and deductions. That's a difference of thousands of dollars for identical gross pay.

StateTypeApprox. Tax on $70,000
TexasNo income tax$0
ColoradoFlat 4.4%$3,080
New YorkProgressive~$3,700
CaliforniaProgressive~$3,300

The Nine No-Tax States

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming levy no broad income tax at all. New Hampshire taxes only certain interest and dividend income, not wages. These states typically make up the revenue elsewhere — often through higher sales or property taxes — so "no income tax" doesn't automatically mean lower overall cost of living.

Figures above are illustrative estimates only, not tax advice. Actual state tax liability depends on filing status, deductions, credits, and local rules — consult a tax professional or your state's revenue department for precise figures.

Frequently Asked Questions

What is state income tax in one sentence?

State income tax is a tax an individual U.S. state charges on income earned by its residents, collected separately from and in addition to federal income tax.

Do all states charge income tax?

No. As of 2026, nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which only taxes some investment income) — do not levy a broad state income tax on wages.

Is state income tax flat or progressive?

It depends on the state. Some, like Colorado and Illinois, use a single flat rate for everyone. Others, like California and New York, use progressive brackets where higher income is taxed at higher rates, similar to the federal system.

How is state income tax different from federal income tax?

Federal income tax is collected by the IRS and funds national programs like defense and Social Security. State income tax is collected separately by each state's revenue department and funds state services like schools, roads, and Medicaid. You typically file two separate returns.

Can I deduct state income tax on my federal return?

Yes, if you itemize deductions, but the SALT (state and local tax) deduction is currently capped at $10,000 combined for state income, sales, and property taxes, which limits the benefit for many taxpayers in high-tax states.

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