Individual Income Taxes (2023)

State and Local Backgrounders Homepage

The individual income tax (or personal income tax) is a tax levied on the wages, salaries, dividends, interest, and other income a person earns throughout the year. The tax is generally imposed by the state in which the income is earned. However, some states have reciprocity agreements with one or more other states that allow income earned in another state to be taxed in the earner’s state of residence.

In 2022, 41 states and the District of Columbia levy a broad-based individual income tax. New Hampshire taxes only interest and dividends. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax individual income of any kind. (Tennessee previously taxed bond interest and stock dividends but the tax was repealed effective in tax year 2021.)

  • How much revenue do state and local governments raise from individual income taxes?
  • Which states rely on individual income taxes the most?
  • How much do individual income tax rates differ across states?
  • What income is taxed?
  • How do states tax capital gains and losses?
  • How do states tax income earned in other jurisdictions?
  • Further reading
  • Note

How much revenue do state and local governments raise from individual income taxes?

State and local governments collected a combined $448 billion in revenue from individual income taxes in 2019, or 13 percent of general revenue. That was a smaller share than state and local governments collected from property taxes but roughly equal to what they collected from general sales taxes.

Individual Income Taxes (1)

Individual income taxes are a major source of revenue for states, but they provide relatively little revenue for local governments. State governments collected $410 billion (19 percent of state general revenue) from individual income taxes in 2019, while local governments collected $38 billion (2 percent of local government general revenue).

In part, the share of local government revenue from individual income taxes is small because of state rules: only 12 states authorized local governments to impose their own individual income tax (or payroll tax) in 2019. In those 12 states, local individual income tax revenue as a percentage of local general revenue ranged from less than 0.1 percent in Oregon to 18 percent in Maryland.

(Video) Ch#1 Lecture (Federal Taxation: Comprehensive): Intro to Individual Income Tax

Localities in Indiana, Iowa, Maryland, and New York levy an individual income tax that piggybacks on the state income tax. That is, local taxpayers in these states file their local tax on their state tax return and use state deductions and exemptions when paying the local tax. Michiganlocalities also levy an individual income tax but use local forms and calculations.

Meanwhile, localities in Alabama, Kansas, Kentucky, Missouri, Ohio, Oregon, and Pennsylvania levy an earnings or payroll tax. These taxes are separate from the state income tax. Earnings and payroll taxes are typically calculated as a percentage of wages, withheld by the employer (though paid by the employee) and paid by individuals who work in the taxing locality, even if the person lives in another city or state without the tax. Localities inKansasonly tax interest and dividends (not wages).

Which states rely on individual income taxes the most?

Maryland collected 24 percent of its state and local general revenue from individual income taxes in 2019, the most of any state. The next highest shares that year were in New York (21 percent) and Massachusetts (20 percent).

Individual Income Taxes (2)

Data: View and download each state's general revenue by source as a percentage of general revenue

Among the 41 states with a broad-based individual income tax, North Dakota relied the least on the tax as a share of state and local general revenue (4 percent) in 2019. In total, six of the 41 states with a broad-based tax collected less than 10 percent of state and local general revenue from individual income taxes that year. In 2019, New Hampshire and Tennessee both taxed a very narrow base of income, and as a result their income taxes provided about 1 percent of state and local general revenue in each state that year. (Tennessee's narrow income tax was eliminated in tax year 2021.)

How much do individual income tax rates differ across states?

In 2022, the top state individual income tax rates range from 2.9 percent in North Dakota to 13.3 percent in California (including the state’s 1 percent surcharge on taxable income over $1 million). The next highest top individual income tax rates are in Hawaii (11 percent), New York (10.9 percent),and New Jersey (10.75 percent). In total, eight states and the District of Columbia have top individual income tax rateabove 8 percent.

Individual Income Taxes (3)

(Video) How to pay your Individual Income Taxes

Data: View and download each state's top individual income tax rate

In contrast, 17 states with a broad-based individual income tax have a top individual income tax rate of 5 percent or lower. Indiana, North Dakota, Ohio, and Pennsylvania have a top tax rate below 4 percent.

Nine states with a broad-based tax use a single (flat) tax rate on all income. Hawaii has the most tax brackets with 12.

Further, unlike the federal individual income tax, many states that use multiple brackets have top tax rates starting at relatively low levels of taxable income. For example, the threshold for the top tax rate in Alabama (5 percent) begins at only $3,001 of taxable income. Thus, most state individual income taxes—even those with multiple rates—are fairly flat. Not counting the nine states with flat tax rates, the threshold for the top income tax rate is below $40,000 in taxable income in 12states. (These taxable income amounts are for single filers. Some states have different brackets with higher totals for married couples. See thistable of state income tax rates for more information.)

But some states have more progressive rate schedules. For example, California's top rate (13.3 percent) applies to taxable income over $1 million. The District of Columbia (8.95 percent) andNew Jersey (10.75 percent) also have top tax rates that begin at $1 million in taxable income. New York's top tax rate (10.9 percent) applies to taxable income greater than $23 million.

What income is taxed?

States generally follow the federal definition of taxable income. According to the Federation of Tax Administrators, 32states and the District of Columbia use federal adjusted gross income (AGI) as the starting point for their state income tax. Federal AGI is a taxpayer’s gross income after "above-the-line" adjustments, such as deductions for individual retirement account contributions and student loan interest. Another five states use their own definitions of income as a starting point for their tax, but these state definitions rely heavily on federal tax rules and ultimately roughly mirror federal AGI. Colorado, Idaho, North Dakota, Oregon, and South Carolina go one step further and use federal taxable income as their starting point. Federal taxable income is AGI plus the federal calculations for the standard or itemized deductions (e.g., mortgage interest and charitable contributions) and any personal exemptions (which the federal government currently sets at $0). That said, some AGI states (e.g., New Mexico) choose to use the federal standard deduction and personal exemption in their state tax calculations, while Oregon chooses not to.

However, across all states, state income tax rules can diverge from federal laws. For example, unlike the federal government, states often tax municipal bond interest from securities issued outside that state. Many states also allow a full or partial exemption for pension income that is otherwise taxable on the federal return. And in most states with a broad-based income tax, filers who itemize their federal tax deductions and claim deductions for state and local taxes may not deduct state income taxes as part of their state income tax itemized deductions.

Because states often use federal rules in their own tax systems, the Tax Cuts and Job Acts (TCJA) forced many states to consider changes to their own systems. This was especially true for states that used the federal standard deduction and personal exemption on their state income tax calculation (before the TCJA nearly doubled the former and eliminated the latter).

(Video) How Do Tax Brackets Actually Work?

A similar dynamic (but with smaller fiscal ramifications) occurred when Congress expanded the federal earned income tax credit and child tax credit in response to the COVID-19 pandemic. Because of connections between the federal and state tax codes, states that conform with these policies will also see increases in their state-level EITC.

How do states tax capital gains and losses?

Five states and the District of Columbia treat capital gains and losses the same as federal law treats them: they tax all realized capital gains, allow a deduction of up to $3,000 for net capital losses, and permit taxpayers to carry over unused capital losses to subsequent years.

Other states offer a range exclusion and deductions not in federal law. Arkansas excludes at least 50 percent of all capital gain income and up to 100 percent of capital gains over $10 million, Arizona exempts 25 percent of long-term capital gains, and New Mexico exempts 50 percent or up to $1,000 of federal taxable gains (whichever is greater). Pennsylvania and Alabama only allow losses to be deducted in the year that they are incurred, while New Jersey does not allow losses to be deducted from ordinary income (see our table on state treatment of capital gains for more detail)

Unlike the federal government, which provides a preferential rate for long-term capital gain income, most states tax all capital gain income at the same tax rate as ordinary income. However, Connecticut, Hawaii, Massachusetts, and Oregon do levy special tax rates on capital gain income.

How do states tax income earned in other jurisdictions?

State income taxes are generally imposed by the state in which the income is earned. Some states, however, have entered into reciprocity agreements with other states that allow outside income to be taxed in the state of residence. For example, Maryland’s reciprocity agreement with the District of Columbia allows Maryland to tax income earned in the District by a Maryland resident—and vice versa. Typically, these are states with major employers close to the border and large commuter flows in both directions. Most states also allow taxpayers to deduct income taxes paid to other states from what is owed to their home state.

Interactive data tools

State and Local Finance Data: Exploring the Census of Governments

State Fiscal Briefs

Further reading

See our backgrounder on state earned income tax credits

How Post-Pandemic Tax Cuts Can Affect Racial Equity
Richard C. Auxier (2022)

State Tax and Economic Review
Lucy Dadayan (updated quarterly)

(Video) Taxes 101 (Tax Basics 1/3)

State Income Tax Expenditures
Aravind Boddupalli, Frank Sammartino, and Eric Toder (2020)

How Increasing the Federal EITC and CTC Could Affect State Taxes
Elaine Maag, and David Weiner (2021)

The Tax Debate Moves To The States: The Tax Cuts And Jobs Act Creates Many Questions For States That Link To Federal Income Tax Rules
Richard Auxier and Frank Sammartino (2018)

Addressing the Family-Sized Hole Federal Tax Reform Left for States
Richard Auxier and Elaine Maag​ (2018)

Federal-State Income Tax Progressivity
Frank Sammartino and Norton Francis (2016)

The Relationship between Taxes and Growth at the State Level: New Evidence
William G. Gale, Kim S. Rueben, and Aaron Krupkin (2015)

Federal and State Income Taxes and Their Role in the Social Safety Net
Elaine Maag (2015)


All revenue data are from the US Census Bureau’s Annual Survey of State Government Tax Collections. All dates in sections about revenue reference the fiscal year unless stated otherwise.


What are the 3 types of individual Income Tax? ›

Tax systems in the U.S. fall into three main categories: Regressive, proportional, and progressive. Regressive and progressive taxes impact high- and low-income earners differently, whereas proportional taxes do not.

How income of an individual is taxed? ›

Taxation of individuals in India is primarily based on their residential status in the relevant tax year. The residential status of individuals is determined independently for each tax year and is ascertained on the basis of their physical presence in India during the relevant tax year and past years.

How do I fill out a self assessment form? ›

Before you start, make sure you have:
  1. your ten-digit Unique Taxpayer Reference (UTR)
  2. your National Insurance number.
  3. details of your untaxed income from the tax year, including income from self-employment, dividends and interest on shares.
  4. records of any expenses relating to self-employment.

Why have I been taxed when I don't earn enough? ›

Cumulative tax basis

Despite the fact their earnings are below their annual allowance, so why is it they are paying tax? Payroll is not run annually, it is instead run on a cycle set by the employer, such as weekly or monthly. Therefore any tax-free allowance is shared evenly across the pay cycle.

What are examples of individual taxpayers? ›

Individual taxpayer means an individual married or single person who has an ownership interest in a flow through entity or has direct flow through income under a Schedule C business or a Schedule E rental activity which may qualify for the 20% deduction.

How can I calculate my income tax? ›

Whether you owe taxes or you're expecting a refund, you can find out your tax return's status by: Using the IRS Where's My Refund tool. Viewing your IRS account information. Calling the IRS at 1-800-829-1040 (Wait times to speak to a representative may be long.)

What is importance of income tax? ›

The money received by the government is known as tax revenue and may be utilized for a broad spectrum of purposes such as infrastructure development in the form of roads, railways, bridges, dams etc., public healthcare and education, defence and civil services, to name a few.

What should I say in my self assessment? ›

A good self-assessment should point to specific tasks and projects that highlight your best work. When describing those accomplishments, employees should emphasize the impact those achievements had on the whole business to emphasize their value to the company.

Is self assessment easy? ›

Self-assessment is simple enough to do yourself if your finances are relatively simple and you know what you are doing. However, it can be time-consuming, and you may end up paying more tax than necessary if you aren't sure about all the expenses and allowances you can claim.

What happens if you don't fill out self assessment? ›

What happens if I don't file my Self Assessment in time? If you fail to notify HMRC, you may face a fine or penalty and will have to submit Self Assessments for prior tax years where applicable.

How do I know if I'm being taxed enough? ›

Use the Tax Withholding Estimator on The Tax Withholding Estimator works for most employees by helping them determine whether they need to give their employer a new Form W-4. They can use their results from the estimator to help fill out the form and adjust their income tax withholding.

Do poor people get taxed less? ›

Combining all state and local income, property, sales and excise taxes that Americans pay, the nationwide average effective state and local tax rates by income group are 10.9 percent for the poorest 20 percent, 9.4 percent for the middle 20 percent and 5.4 percent for the top 1 percent, the report said.

What is meaning of individual taxpayer? ›

A taxpayer is an individual or entity that is obligated to make payments to municipal or government taxation-agencies. Taxes can exist in the form of income taxes and/or property taxes imposed on owners of real property (such as homes and vehicles), along with many other forms.

Who should pay income tax? ›

Who are Taxpayers? Any Indian person under the age of 60 who earns more than Rs 2.5 lakh is required to pay income tax. Individuals above the age of 60 who earn more than Rs 2.5 lakh per year must pay taxes to the Government of India.

Who comes under individual taxpayer? ›

ITR-1: Individuals (residents) having income from salary, one house property, other sources, agricultural income less than Rs 5,000 and with a total income of up to Rs 50 lakh. ITR-2: Individuals/HUFs not having any business or profession under any proprietorship.

How much tax do I pay on $25000? ›

If you make $25,000 a year living in the region of California, USA, you will be taxed $2,106. Your average tax rate is 5.18% and your marginal tax rate is 12%.

What are the types of income tax? ›

Taxes are of two different types; direct tax and indirect tax. Taxes charged on income earned is called direct tax. Income tax is an excellent example of direct tax. On the other hand, an indirect tax is imposed by the government on a taxpayer for goods and services rendered.

How do I answer self evaluation questions? ›

Be specific and descriptive of both positive and negative attributes of your work. For each of the areas, you should always consider the positive and negative attributes of your performance. Determine where did you exceed the expectations, where did you meet them and where and how you can continue to improve.

What are good comments for a self performance review? ›

Positive self appraisal comments
  • I have a clear understanding of what I am expected to do as a part of my role.
  • I understand the value my work is able to contribute to the overall organizational success.
  • I was able to meet 80% of my OKRs in the last quarter.
  • I stay updated on the latest trends and insights in my field.

What should I write in my self END year assessment? ›

Tips on how to write a performance evaluation self-assessment
  1. Use numbers to your advantage. Include figures that add value to your work, if possible. ...
  2. Mention results. ...
  3. Take the company's objectives into account. ...
  4. Record your achievements in real-time. ...
  5. Take your time.

Why is self-assessment so difficult? ›

First, when making self-judgments, people lack crucial categories of information necessary to reach accurate evaluations. Second, although people receive feedback over time that could correct faulty self-assessments, this feedback is often biased, difficult to recognize, or otherwise flawed.

Do self assessments get checked? ›

However, In reality, HMRC can go back and look at your Self Assessment submission using the discovery assessment rules if certain conditions are met. The time ranges from 4 years where an incomplete tax return has been carelessly made, up to 20 years if there has been a deliberate hiding of income.

Do you need an accountant to do self-assessment? ›

Admittedly some questions can take a few moments to grasp what they are asking, but so long as you do not leave the tax return to the last minute, it is entirely possible to do it yourself without an accountant – or at least give it a bash.

How many years can you go without filing taxes? ›

Note, too, that the IRS does not have a statute of limitations on missing or late tax forms. If you didn't file taxes for the last two, three, ten, twenty, or fifty years, the IRS will still accept your forms as soon as you can get them submitted.

What happens if your tax return is wrong? ›

What do I need to know? If you realize there was a mistake on your return, you can amend it using Form 1040-X, Amended U.S. Individual Income Tax Return. For example, a change to your filing status, income, deductions, credits, or tax liability means you need to amend your return.

What is the penalty for incorrect tax return? ›

If undisclosed income is admitted during the course of Search and assessee pays tax and interest and files return, a penalty @ 30% of such undisclosed income is payable. In all other cases, penalty is leviable @ 60%

Is it better to claim 1 or 0? ›

By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.

Is it true the more you make the more you get taxed? ›

The more you earn, the more taxes you pay—but the U.S. progressive federal income tax system lessens the bite somewhat. Since the system levies different tax rates on different portions of an individual's income, your entire income won't be subject to a higher tax bracket when you get a raise.

Who pays the most taxes rich or poor? ›

A progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden.

Why do rich people pay so little tax? ›

Because of a tax code feature known as “stepped-up basis,” unrealized gain on an asset is never subject to income tax if the asset is not sold during the owner's lifetime. As a result, much of the income of the wealthiest families in the country never appears on their income tax returns.

How much do rich people avoid in taxes? ›

New OMB-CEA Report: Billionaires Pay an Average Federal Individual Income Tax Rate of Just 8.2% | OMB | The White House.

What are the 3 most common taxes? ›

There are various lesser-known types of tax, such as tax when you travel, or tax for gambling winnings, but in this post, we'll be focusing on three of the most common types of tax: income tax, consumption tax, and property tax.

What are 3 direct taxes examples? ›

Direct taxes include:
  • Individual Income Tax.
  • Corporate Income Tax.
  • Capital Gains Tax.
  • Estate Tax.
  • Property Taxes.

How many types of income tax are there? ›

Taxes are of two different types; direct tax and indirect tax.

What is a individual tax classification? ›

Individual/sole proprietor or single-member LLC: Someone who owns an unincorporated business by themselves.

What is the most important tax? ›

As shown in figure 1 above, income taxes are the largest tax base in the United States. Income taxes (including taxes on individual and corporate income; and for the federal government, deductions from payrolls for social insurance and retirement) are a major source of revenue for federal, state and local governments.

Why should I pay income tax? ›

Taxes are used by the government for carrying out various welfare schemes including employment programmes. There are Lakhs of employees in various departments and the administrative cost has to be borne by the Government.

What is the best type of tax? ›

In the United States, the historical favorite is the progressive tax. Progressive tax systems have tiered tax rates that charge higher income individuals higher percentages of their income and offer the lowest rates to those with the lowest incomes.

What is tax and its types? ›

Types of Taxes
Direct TaxesIndirect TaxesOther Taxes
Income TaxSales TaxProperty Tax
Wealth TaxGoods & Services Tax (GST)Professional Tax
Gift TaxValue Added Tax (VAT)Entertainment Tax
3 more rows

What do you mean by tax? ›

A tax is a mandatory fee or financial charge levied by any government on an individual or an organization to collect revenue for public works providing the best facilities and infrastructure.

What are the two most common types of taxes? ›

There are several very common types of taxes: Income tax—a percentage of generated income that is relinquished to the state or federal government. Payroll tax—a percentage withheld from an employee's pay by an employer, who pays it to the government on the employee's behalf to fund Medicare and Social Security programs.

What are the main tax types? ›

Individual and Consumption Taxes
  • Individual Income Taxes.
  • Excise Taxes.
  • Estate & Gift Taxes.

What are the types of income? ›

Three of the main types of income are earned, passive and portfolio. Earned income includes wages, salary, tips and commissions. Passive or unearned income could come from rental properties, royalties and limited partnerships. Portfolio or investment income includes interest, dividends and capital gains on investments.

What is individual tax exemption? ›

An exemption is a dollar amount that can be deducted from an individual's total income, thereby reducing. the taxable income. Taxpayers may be able to claim two kinds of exemptions: • Personal exemptions generally allow taxpayers to claim themselves (and possibly their spouse)

What is individual tax planning? ›

Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient. Tax planning should be an essential part of an individual investor's financial plan.


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