Overview
Where you live has a big impact on how much of each paycheck you get to take home. Two people earning the same salary can end up with very different tax bills depending on which state they call home. Some states will take more than 13% if you’re in the highest tax bracket. Others don’t touch your wages at all.
But before you think about relocating or negotiating a remote job to avoid state income taxes, you need to understand how state taxes work, which states charge the most and the least, and what to know if you live in one state and work in another.
Key Takeaways:
State income tax is separate from federal income tax, and states use either a flat rate or a graduated bracket system.
Eight states charge no income tax at all, but they often make up for the revenue through higher property, sales, or other taxes.
If you live in one state and work in another, you may owe tax in both, although you may have options to avoid double taxation.
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What Is State Income Tax?
State income tax is an amount the state government collects on the money you earn. It’s similar to federal income tax but charged separately by each state. State income taxes typically apply to wages and salaries, and in many states, they also apply to investment income like capital gains.
Not every state structures income taxes the same way. They generally take one of two approaches:
Flat tax states charge a single tax on all taxable income, no matter how much you earn. Fourteen states use this approach.
Graduated-rate (progressive) tax states use a system of tax brackets where your tax rate increases as your income rises. This is the same basic structure the federal government uses. Twenty-six states and the District of Columbia take this approach. The number of tax brackets varies by state. Hawaii has 12, while a handful of other states have just two.
Another important term to understand is your “marginal tax rate.” This is the rate that applies to your last dollar of income, not your entire income.
For example, California‘s top tax rate is 13.30%. If you’re in that tax bracket, that doesn’t mean the state takes 13.3% of everything you earn. It means you pay that rate on the income that’s in that highest bracket. In California, the highest tax bracket applies to income over $1 million for single filers or $1,485,906 for married couples filing jointly. The state taxes income below that threshold at lower rates.
States With No Income Tax
Eight states don’t have a personal income tax. That list includes Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. New Hampshire is the most recent addition to that list, having repealed its tax on interest and dividend income as of January 1, 2025.
If you live in a state with high income taxes, moving to a state without income taxes might seem ideal. But state governments still need revenue to fund schools, roads, and public services. When a state skips the income tax, it usually makes up for that revenue somewhere else.
Common alternatives to the state income tax include:
Property taxes. A tax on the value of real estate you own.
Sales taxes. A percentage added to the price of goods and services you buy.
Excise taxes. Narrower taxes on specific items, like gasoline, alcohol, or tobacco.
Corporate taxes. Taxes businesses pay on profits, and the cost is usually passed along to consumers through prices or to workers through wages.
Estate and inheritance taxes. A tax on the value of someone’s assets after they pass away or a tax on the assets distributed to heirs.
Unemployment insurance taxes. A tax employers pay into a state fund to cover benefits for workers who lose their jobs.
So before you assume a no-income-tax state is automatically cheaper to live in, consider the overall state tax competitiveness. A state with no income tax but high property taxes might cost you more overall than a state with a modest income tax and lower costs everywhere else.
5 States With the Highest Income Tax Rates
These are the five states with the highest top marginal income tax rates as of 2026, according to the Tax Foundation:
Rank | State | Top Marginal Rate |
1 | California | 13.3% |
2 | Hawaii | 11.0% |
3 | New York | 10.9% |
4 | New Jersey | 10.75% |
5 | Oregon | 9.9% |
These high top rates generally don’t kick in until you reach a fairly high income level. If you’re not a high earner, your marginal rate in these states will be lower than the top bracket.
Also, keep in mind these figures only reflect state-level rates. They don’t include local income taxes, which some cities and counties charge on top of the state tax rate. For example, New York City adds an extra 3.078% to 3.876% on top of New York’s state tax rate, depending on your filing status and taxable income.
5 States With the Lowest Income Tax Rates
Among the states that charge an income tax rate, these five have the lowest top marginal rates, according to the Tax Foundation:
Rank | State | Top Marginal Rate |
1 | Arizona | 2.5% |
2 | North Dakota | 2.5% |
3 | Ohio | 2.75% |
4 | Indiana | 2.95% |
5 | Pennsylvania | 3.07% |
Arizona, Ohio, Indiana, and Pennsylvania all use flat tax structures, meaning the state taxes every dollar you earn at the same rate. North Dakota uses graduated tax brackets, but its top rate only applies to income above $244,825 for single filers ($298,075 for married couples filing jointly), so many residents pay 0% or the lower 1.95% rate.
What If You Live in One State and Work in Another?
If your home state and your work state aren’t the same, you may owe income tax in both places. This is common for people who live near a state border and commute across for work or who move but keep a job tied to their old state.
Some states have reciprocity agreements, which let you pay income tax only to your home state, even if you work elsewhere. For example, if you live in Pennsylvania but work in New Jersey (or vice versa), those states have a reciprocal income tax agreement, so you only pay taxes in your home state.
If you work in a state with a reciprocal tax agreement with your home state, you may need to give your employer an exemption form so they don’t withhold state income taxes unnecessarily. You have to file a state income tax return in the other state to get a refund if your employer withholds state income taxes.
When there is no reciprocity agreement, you typically have to file a return in both states. But your home state usually gives you a credit for taxes paid to other states. State income tax rates vary, and filing income tax returns in multiple states is complicated. In these cases, it’s usually a good idea to work with a qualified tax professional.
Should You Move Somewhere for the Tax Savings?
It’s a good idea to factor taxes into a relocation decision since they’re part of the overall cost of living, but taxes shouldn’t be the only factor. Housing prices, job opportunities, proximity to family, and quality of life usually matter more day to day than a few percentage points of state tax.
If you’re weighing a move with tax savings in mind or dealing with a multi-state filing situation, it’s worth talking to a tax professional or using tax software to ensure you’re filing correctly and not missing any tax credits.
Level up you tax filing game with TaxSlayer
File your taxes with TaxSlayer and get your maximum refund.
by your friends at The Daily Navigator
