All but seven states in the union impose income taxes on individuals. Employees or residents of a state may be subject to that state’s income tax. The structure which most states (36 plus the District of Columbia) use resembles the structure of the federal government system, meaning these states tax wages as well as other income sources under a progressive tax system. However, it is noteworthy that these states tend to have fewer tax brackets and lower rates than the federal system. The following is a list of the 16 states that utilize systems different than the federal government
Seven states impose no income tax on individuals at all. They are:
* South Dakota
The following two states impose no income tax on the earnings of individual taxpayers but do subject dividends and investment income to an income tax. They are:
* New Hampshire
These nine states primarily make up for revenue lost to federal income tax by taxing items such as travel accommodations, theme parks, gaming, sale of goods, gasoline, and property taxes.
Of the states that do have a personal income tax, the following seven use a flat tax rate, meaning they impose income tax at the same rate on all income levels:
These flat rates are relatively low, ranging from just over 3 percent to more than 5 percent.
Forty-four different states have a corporate income tax. Rates typically range from about 4 percent to 15 percent. Of the states listed above that do not collect an individual income tax, only four of them do not collect a corporate tax as well. Alaska, Florida, and New Hampshire (which does not impose tax on an individual's earnings but does on investment income) each tax corporations. While Texas and Washington do not, they impose a gross receipts tax that is levied on the gross revenues of business (somewhat similar to a sales tax). Nevada, South Dakota, and Wyoming are the only states to have neither an individual tax, corporate tax or impose tax on gross receipts.
What These Taxes Go Towards
Most of the revenue from state income taxes fund education and health care, including Medicaid. Income tax revenue also pays for transportation, corrections, pension and health benefits for state employees, services for persons with mental illnesses and developmental disabilities, assistance for low-income families, economic development and projects, police, and parks and recreation. The percentage of income tax revenue spent on these services varies widely from state to state.
A federal deduction for state income taxes paid by an individual is available for taxpayers who itemize. In other words, a taxpayer may be eligible to deduct the taxes they pay to their state if their total of annual deductible expenses is greater than the standard deduction.