State Income Taxes Explained: Your 2025 Guide

Tax credits are only awarded in certain circumstances, however. Some credits are refundable, which means you can receive payment for them even if you don’t owe any income tax. By contrast, nonrefundable tax credits can reduce your liability no lower than zero.

State Income Taxes: A Spectrum of Approaches

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Amend Business Taxes Efficiently: Top Strategies for Business Owners

These taxes affect most individuals and organizations and failing to file accurately and on time can spur consequences like fines, audits and other costly penalties. Read how state income taxes work, how they’re calculated and the individual rates for 2025 in each state that maintains them. Forty-four states levy a bookkeeping corporate income tax, with top rates ranging from a 2.25 percent flat rate in North Carolina to a 11.5 percent top marginal rate in New Jersey. Unlike tax credits, personal exemptions are subtracted from a taxpayer’s gross income and depend on your status and number of dependents. Since 2017, taxpayers’ federal tax exemptions have been set to $0.

Tax Loopholes the Rich Use To Pay Less and Build More Wealth

The federal government offers a range of tax credits for taxpayers with limited earnings, families with dependents, those with a Head of Household status, and students. In addition to these federal credits, states and local governments also offer tax credits to their residents, based on various policies and priorities. There are several important factors that could help you reduce your overall tax burden for both federal and state tax. These include whether you state income tax rates itemize or claim standard deductions, your eligibility for tax credits, and potentially being able to request personal tax exemptions. 754, enacted in May 2023, reduced the top individual income tax rate from 5.84 percent in 2024 to 5.20 percent in 2025 and outlined the gradual reduction of the state’s top rate to 3.99 percent by 2027.

State income tax rates play a significant role in personal finances, affecting disposable income and long-term financial planning. Whether living in a high-tax state, a flat-tax state, or one with no income tax at all, taxpayers should stay informed about their state’s tax policies and consider how these rates fit into their broader financial goals. Being aware of changes in tax laws and planning accordingly can help individuals and families make the best financial decisions for their future. Additionally, the state significantly increased its personal exemption (to $12,000 for single taxpayers and $18,500 for married couples filing a joint return). 6941, Connecticut legislators reduced individual income tax rates for the two lowest brackets, from 3 percent to 2 percent and from 5 percent to 4.5 percent, respectively. The reduction will not affect taxpayers with an annual income of $150,000 or above ($300,000 or above for married couples filing a joint return).

• Many of the law’s provisions took effect on January 1, 2023, including the initial reduction in the individual income tax rate from 5 to 4.5 percent.
• While it often makes sense to file jointly, filing separately may be the better choice in certain situations.
• Let’s take a look at the states with the steepest income tax rates.
• Their prominence in public policy considerations is further enhanced by individuals being actively responsible for filing their income taxes, in contrast to the indirect payment of sales and excise taxes.
• Mastering the Art of Business Tax Penalty Appeals Navigating the labyrinth of business tax obligations…
• South Carolina has the lowest state income tax rate starting at 0.0%.

State and Local Tax Burdens, Calendar Year 2022

Wisconsin individual income tax rates vary from 3.50% to 7.65%, depending upon marital status and income. Taxes fund essential state services, like schools, transportation and public services — so states with no income tax have to make up the difference elsewhere, like Remote Bookkeeping by charging higher sales, property or capital gains taxes. Their cost of living or housing market could also be more expensive, offsetting their 0% state income tax rates.

While some states impose a progressive tax system with multiple brackets, others have a flat rate or no income tax at all. Understanding state income tax rates is essential for individuals planning their finances, relocating to a new state, or optimizing their tax situation. The tax policies of each state can significantly affect take-home pay and overall financial well-being. 121, enacted in March 2023, simplified the individual income tax system in Montana and, effective January 1, 2024, reduced the number of tax brackets from seven to two with the top tax rate of 5.9 percent. Some states double their single-filer bracket widths for married filers to avoid imposing a “marriage penalty.” Some states index tax brackets, exemptions, and deductions for inflation, while many others do not.

• Taxpayers who choose to itemize their deductions when filing for their federal tax returns might also be eligible for a State and Local Tax (SALT) deduction.
• This is good news, as it means you can earn slightly more before being pushed into a higher tax bracket.
• Brackets will be further widened in 2027, with additional increases to the standard deduction phased in over several years.
• State income taxes are a tax enforced by a state’s government that apply to any money earned in — and sometimes outside — of a certain state.
• The rate chart below provides Wisconsin’s state, county, and city sales and use tax rates.

• Additionally, each state has different costs of living and public services that might balance out the tax savings.
• Some states do not tax retirement income at all, while others partially exempt Social Security benefits, pensions, or distributions from retirement accounts.
• Before you relocate, plan your budget or file your taxes, use the tables above to compare your options.
• State income tax rates in 2025 range from zero in places like Wyoming and Florida to more than 10% in California and New York, with many states in between.
• However, it’s essential to weigh these benefits against other factors such as market access, labor availability, and infrastructure.
• In addition to the federal estate tax, with a top rate of 40 percent, 12 states and DC impose additional estate taxes, while six states levy inheritance taxes.

If you enjoy our weekly tax maps, help us continue this work and more by making a small contribution here. Vermont charges the most in property taxes, at 5% of residents’ income. All states have some sort of property tax, but Alabama’s is by far the lowest—only 1.4%. In most states, taxpayers can benefit from a standard deduction or other types of itemized deductions.