How U.S. Income Taxes Work
Short explanations that answer the question in the first paragraph, then show the working. Each one links back into the data so you can check any claim against the state's own published figures.
Explainers
How State Income Taxes Work
A state income tax takes a percentage of the income you earn while living or working in that state, calculated on the state’s own definition of taxable income — usually your federal figure with state-specific additions and subtractions applied.
Marginal vs Effective Tax Rate
Your marginal rate is the percentage charged on your next dollar of income. Your effective rate is total tax divided by total income. The effective rate is always lower, usually by a lot.
How Tax Brackets Work
A tax bracket is a band of income taxed at one rate. Each band is charged separately, so income fills the lower brackets before reaching the higher ones — the top rate you qualify for never applies to your whole income.
Flat vs Progressive Tax
A flat tax applies one rate to all taxable income. A progressive (graduated) tax applies rising rates to successive slices. Most U.S. states that tax income use graduated brackets; a growing minority have moved to a flat rate.
Why Some States Have No Income Tax
Nine jurisdictions levy no individual income tax on wages. They raise the money elsewhere — most commonly through higher sales taxes, higher property taxes, or taxes on natural resource extraction and tourism.
State vs Federal Income Tax
Federal income tax is one system with one set of rules for the whole country. State income tax is fifty-one separate systems, nine of which do not exist. For most households the federal bill is several times the state bill.
What Is Taxable Income
Taxable income is what remains after subtracting adjustments and either the standard or itemised deduction from gross income. It is the number tax brackets are applied to — and it is always smaller than your salary.
Standard Deduction Explained
The standard deduction is a fixed amount of income the tax code lets you exclude without proving anything. You take it or you itemise — whichever is larger — and the vast majority of filers take the standard amount.
Moving Between States for Tax Reasons
Moving from a high-tax to a no-tax state saves you the state income tax you were paying — and nothing else. Whether that is worth it depends on what the destination charges in sales tax, property tax and housing costs instead.