2025 State Income Tax Guide: Rates, No-Tax States & What You Need to Know

Julia Kagan is a financial and consumer journalist, formerly a senior editor for personal finance at Investopedia.

What Is State Income Tax in 2024?

State income tax is a tax imposed by individual states on the income earned by residents and nonresidents who generate income from sources within that state. Similar to federal taxes, state income tax is self-reported, requiring taxpayers to file state tax returns annually.

Key Facts to Know

• 42 states currently impose a state income tax, while Washington, D.C. has its own local tax.
• Tax rates, rules, and filing procedures vary significantly from state to state.
• If you earn income in multiple states, you must file returns in each state that taxes your income, but only your resident state taxes your entire income.

States Without Income Tax in 2024

As of 2024, eight states do not collect any income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Notably, New Hampshire eliminated its tax on unearned income such as dividends and interest starting January 1, 2025.

Quick Overview

Residents of these states enjoy the benefit of no state income tax, but if you live in a state that does impose income tax, working temporarily or permanently in a no-tax state won’t exempt you from your home state’s tax obligations.

Filing Taxes Across Multiple States

Many taxpayers live and work in a single state, but those earning income in multiple states must navigate complex filing requirements. For example, a professional who lives in New Jersey but works in New York, California, and Illinois must file tax returns in all those states.

Your primary tax home is generally where you spend the most time working, which affects how you file and pay taxes. States often have reciprocal agreements to avoid double taxation, but if none exist, you may claim credits to offset taxes paid to other states.

Important Considerations

Telecommuting and remote work further complicate tax filings, so consulting a tax professional is advisable to ensure compliance and optimize tax liabilities.

Business Income Tax in 2024

Some states tax corporations, partnerships, trusts, and estates, often offering incentives like lower rates or exemptions to attract businesses. States impose taxes only if a business has a substantial nexus in the state, such as property, employees, or income generated there.

Highest State Income Tax Rates in 2024

California leads with the highest marginal income tax rate at 13.3% for income exceeding $1 million. Including its 1.1% payroll tax, the effective top rate reaches 14.4%. Other states have flat or graduated rates depending on income levels.

Avoiding Double Taxation

Following a 2015 U.S. Supreme Court ruling, states cannot tax the same income twice. However, taxpayers must still file returns in each state where income was earned.

Final Thoughts

Understanding state income tax obligations is crucial in 2024, especially for those living or working across multiple states. Filing correctly ensures compliance and prevents overpayment. When in doubt, seek professional tax advice to navigate complex situations and optimize your tax outcomes.

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