US state income tax: who taxes what
The nine no-tax states, flat vs graduated rates, who actually gets to tax you, the remote-work convenience rule, and the SALT cap after the One Big Beautiful Bill.
Federal tax is only half the picture. Where you live — and sometimes where you work — adds a second layer that can range from nothing at all to more than 13%. This is the plain-English guide to US state income tax for 2025: who charges what, which state gets to tax you, and how the One Big Beautiful Bill changed the deduction that connects the two.
The nine states with no income tax
Most states tax income, but nine do not tax wages and salaries at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. New Hampshire is the newest member — it taxed interest and dividends until that levy was fully repealed from 1 January 2025, so 2025 is the first year it is genuinely income-tax-free.
Flat or graduated
Of the 41 states that do tax income, the long-standing split is between graduated brackets (like the federal system) and a single flat rate on every dollar. The clear trend of the last few years has been toward flat taxes: more than a dozen states now use one, including Arizona (2.5%), Indiana (~3%), Pennsylvania (3.07%), Illinois (4.95%) and Colorado (~4.4%). Several others — Georgia, Iowa, Louisiana, Mississippi and Kentucky — have recently moved to, or are phasing in, a flat rate.
Where it bites hardest
At the other end, a handful of states have top marginal rates that rival or beat the federal 37% when stacked on top. California leads, and once you add New York City's local tax to New York State's, the combined top rate is close behind.
| State | Top rate | Applies roughly from |
|---|---|---|
| California | 13.3% | income over $1m (incl. 1% surtax) |
| New York | 10.9% | state only; NYC adds up to ~3.9% |
| New Jersey | 10.75% | income over $1m |
| Hawaii | 11% | top bracket |
| Oregon | 9.9% | plus local transit taxes |
| Minnesota | 9.85% | top bracket |
Residency decides who taxes you
A state taxes its residents on their worldwide income and non-residents only on income sourced there. So the first question is always: which state are you a resident of? Two tests usually decide it — domicile (your true, permanent home) and statutory residence (a day-count, very often 183 days, combined with maintaining a home in the state). High-tax states police this hard: leaving California or New York without genuinely cutting ties is one of the most-audited areas in US tax.
When two states want a cut
Live in one state and earn in another and both may claim the income. The system that stops you being taxed twice is the credit for taxes paid to other states: your home state taxes the income but gives you a credit for what the work state charged. Some neighbouring states go further with reciprocity agreements (for example New Jersey and Pennsylvania) so you only pay your home state and your employer withholds accordingly.
Remote work and the "convenience" rule
Remote work has made this messy. A few states — most notably New York, plus Connecticut, Delaware, Nebraska and Pennsylvania — apply a convenience of the employer rule: if you work remotely for an employer based there for your own convenience rather than the employer's necessity, that state still taxes you, even if you never set foot in it. You can end up owing tax to a state you don't live in, and relief depends on your home state's credit rules.
The SALT deduction after the Big Beautiful Bill
The state and local tax (SALT) deduction lets itemisers deduct state income (or sales) and property taxes on their federal return. The 2017 tax law capped it at $10,000 — painful in high-tax states. The 2025 One Big Beautiful Bill Act raised the cap sharply.
| Tax year | Cap | Notes |
|---|---|---|
| 2025 | $40,000 | phases down above $500k MAGI (floor $10k) |
| 2026–2029 | +1% / year | cap and income threshold both rise 1% a year |
| 2030 | $10,000 | reverts to the old cap |
City and local taxes
Some of the heaviest burdens are local. New York City and Yonkers levy their own income tax on residents; many Ohio and Pennsylvania municipalities tax wages where you work; and cities like Philadelphia and Detroit run their own systems. These rarely show up in headline state-rate tables but land squarely on your pay.
A worked example
Take $150,000 of salary. In Texas the state income tax is $0 — the whole burden is federal plus payroll. Move the same job to California and you add several thousand dollars of state tax on top, at a marginal rate near 9.3% in that band. Neither is "wrong" — Texas recovers more through property and sales taxes — but for a high earner with modest spending and property, the no-income-tax states can be materially cheaper, which is exactly why state choice has become part of serious tax planning.
Sources & further reading
- 1Tax Foundation — State individual income tax rates and brackets, 2025
- 2Tax Foundation — State and local tax (SALT) deduction
- 3Bipartisan Policy Center — SALT deduction changes in the One Big Beautiful Bill Act
- 4New Hampshire DRA — Interest & Dividends Tax (repealed from 2025)
- 5Washington DOR — Capital gains tax
- 6California FTB — Tax rates and brackets
This guide is general information, not personal tax advice, and reflects the rules we believe to apply as at June 2026 — rates and thresholds change. Always check your own figures against the IRS and consider a qualified adviser before acting. You remain responsible for the accuracy of anything you file.
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Start freeFrequently asked questions
Which US states have no income tax?
Nine: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. New Hampshire became fully income-tax-free from 2025, and Washington still taxes some long-term capital gains.
What is the SALT deduction cap for 2025?
The One Big Beautiful Bill Act raised it from $10,000 to $40,000 for 2025, phasing down above $500,000 of MAGI, rising 1% a year through 2029, then reverting to $10,000 in 2030.
Which state taxes my income if I work remotely?
Usually your resident state — but a few states, notably New York, apply a “convenience of the employer” rule that still taxes remote workers of an in-state employer. You can owe two states, with a credit easing the double tax.
How is state residency decided?
By domicile (your true, permanent home) and a statutory day-count — very often 183 days combined with keeping a home in the state. High-tax states audit departures closely.