US State Income Tax Compared: Where You Live Changes Your Pay

Federal tax is the same wherever you live in the United States. State tax is not, and the spread is wide enough to change a relocation decision. Nine states levy no tax on wage income at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, New Hampshire and Washington. At the other end, top marginal rates exceed 10 per cent in California, New York, New Jersey, Oregon, Minnesota, Hawaii and Massachusetts once surtaxes are counted.

Between those poles sits a growing group of flat-tax states. Arizona, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Mississippi, North Carolina, Pennsylvania and Utah each apply a single rate to taxable income, generally between 2.5 and 5.5 per cent. Several arrived there recently by collapsing graduated schedules, and a number have legislated further reductions contingent on revenue targets, so the rate you used last year may not be current.

A no-income-tax state is not automatically cheaper overall. Revenue has to come from somewhere, and these states typically lean harder on sales tax, property tax, excise duties or severance taxes on natural resources. Texas has no income tax and some of the highest effective property tax rates in the country; Tennessee funds itself partly through a high combined sales tax. The honest comparison is total state and local tax burden as a share of income for a household like yours, not the income tax line alone.

Local income taxes are the layer most often forgotten. New York City imposes its own tax on residents on top of the state tax, as does Yonkers. Nearly every Maryland county adds a local rate. Hundreds of Ohio and Pennsylvania municipalities levy earned income taxes, and cities including Detroit, St. Louis and Kansas City have their own. A quoted state rate can understate the real figure by two or three percentage points.

Working in one state and living in another creates a separate set of rules. Generally you file a non-resident return where you earned the income and a resident return where you live, with the resident state granting a credit for tax paid elsewhere. Reciprocity agreements between certain neighbouring states simplify this by allowing withholding only for the home state — common across the Midwest and the mid-Atlantic. Where no agreement exists, two returns are the norm.

Remote work has made residency itself contentious. States determine residency by domicile and by day-count statutory tests, and several are aggressive about auditing departures, particularly New York and California. If you move, build a paper trail: driver's licence, voter registration, vehicle registration, bank and brokerage addresses, doctors and dentists, lease or deed, and a genuine reduction in days spent in the old state. Keeping an apartment and returning most weekends invites a challenge.

Retirees should look past the headline rate to how a state treats retirement income. Some exempt Social Security entirely, others tax it in step with federal treatment. Pension income, military retirement pay and distributions from retirement accounts receive widely varying treatment, and a handful of states offer generous age-based exclusions that make a moderate-rate state cheaper in practice than a low-rate neighbour.

Our US tax calculator includes every no-tax state, every flat-rate state and the major graduated states, applying each state's rate schedule and standard deduction to your federal adjusted gross income. It deliberately excludes local city and county taxes and state-specific credits, so treat the state line as a strong planning estimate and confirm against your state revenue department before you file.