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State Tax Rates 2021

A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization. Taxes are used to fund a number of public expenditures, such as roads, public transportation, education, and others. When expenditures exceed tax revenue, the government goes into debt.

Taxes have two effects:

  • An income effect because they reduce purchasing power to taxpayers (income tax)
  • A substitution effect when taxes cause a substitution between taxed goods and untaxed goods (sales tax)

Federal income tax is the tax levied by the United States Internal Revenue Service (IRS) on the earnings of individuals and legal entities. However, most states collect state income and sales taxes in addition to the federal income tax. State taxes are given little attention compared to federal income taxes.

States take one of three approaches when it comes to state income taxes:

  • The state does not collect income tax
  • The state imposes a flat tax, taxing all income (or only dividends and interest) at the same rate
  • The state imposes a progressive tax which taxes higher income at higher rates

First, there are seven states that do not collect a state income tax. While these states do not have an additional income tax, other taxes, such as property or sales taxes, could be higher in these states. The seven states are:

Second, there are eleven states with flat income tax rates. In New Hampshire and Tennessee, the tax rate applies to dividends and interest income and regular income is typically not subject to state tax. These states are:

The remaining states and the District of Columbia have state income tax brackets. The higher an individual’s income, the higher the tax bracket he/she will be placed into. California has the highest potential state income tax bracket of 13%.

Here are the 10 states with the highest income tax rates:

  1. California (13.30%)
  2. Iowa (8.98%)
  3. Vermont (8.95%)
  4. New York (8.82%)
  5. Hawaii (8.25%)
  6. Idaho (7.40%)
  7. Maine (7.15%)
  8. South Carolina (7.00%)
  9. Connecticut (6.99%)
  10. Nebraska (6.84%)

State Tax Rates 2021

State Income Tax Lowest Bracket Income Tax Highest Bracket 2021 Pop.
Alabama2.00%0.00%4,934,193
Alaska0.00%0.00%724,357
Arizona2.59%0.00%7,520,103
Arkansas0.90%0.00%3,033,946
California1.00%13.30%39,613,493
Colorado0.00%0.00%5,893,634
Connecticut3.00%6.99%3,552,821
Delaware2.20%6.60%990,334
Florida0.00%0.00%21,944,577
Georgia1.00%6.00%10,830,007
Hawaii1.40%8.25%1,406,430
Idaho1.60%7.40%1,860,123
Illinois4.95%4.95%12,569,321
Indiana3.23%3.23%6,805,663
Iowa0.36%8.98%3,167,974
Kansas2.90%5.20%2,917,224
Kentucky2.00%0.00%4,480,713
Louisiana2.00%6.00%4,627,002
Maine5.80%7.15%1,354,522
Maryland2.00%5.75%6,065,436
Massachusetts5.00%0.00%6,912,239
Michigan4.25%0.00%9,992,427
Minnesota5.35%0.00%5,706,398
Mississippi3.00%0.00%2,966,407
Missouri1.50%0.00%6,169,038
Montana1.00%0.00%1,085,004
Nebraska2.46%6.84%1,951,996
Nevada0.00%0.00%3,185,786
New Hampshire5.00%0.00%1,372,203
New Jersey1.40%0.00%8,874,520
New Mexico1.70%4.90%2,105,005
New York4.00%8.82%19,299,981
North Carolina5.25%0.00%10,701,022
North Dakota1.10%0.00%770,026
Ohio0.50%0.00%11,714,618
Oklahoma0.50%0.00%3,990,443
Oregon5.00%0.00%4,289,439
Pennsylvania3.07%0.00%12,804,123
Rhode Island3.75%0.00%1,061,509
South Carolina0.00%7.00%5,277,830
South Dakota0.00%0.00%896,581
Tennessee1.00%1.00%6,944,260
Texas0.00%0.00%29,730,311
Utah4.95%4.95%3,310,774
Vermont3.55%8.95%623,251
Virginia2.00%5.75%8,603,985
Washington4.00%0.00%7,796,941
West Virginia3.00%0.00%1,767,859
Wisconsin4.00%0.00%5,852,490
Wyoming0.00%0.00%581,075

State Tax Rates 2021