Finance Maxxing
State & Local Taxes
State Income Tax
Varies by state: progressive, flat, or none.
States use three income tax models, each with different implications for tax planning.
State Tax Models
| Model | Examples | Description |
|---|---|---|
| No income tax | FL, TX, NV, WY, SD, AK, TN, NH, WA* | No tax on wages |
| Flat rate | IL (4.95%), CO (4.4%), AZ (2.5%) | Single rate on all income |
| Progressive | CA (1%–13.3%), NY (4%–10.9%), NJ (1.4%–10.75%) | Multiple brackets |
*WA has a 7% capital gains tax on gains over $250,000
Highest and Lowest Tax States (Top Marginal Rate)
| Highest | Rate | Lowest (with tax) | Rate |
|---|---|---|---|
| California | 13.3% | Arizona | 2.5% |
| Hawaii | 11% | North Dakota | 1.95% |
| New Jersey | 10.75% | Indiana | 3.05% |
| Oregon | 9.9% | Pennsylvania | 3.07% |
| Minnesota | 9.85% | Michigan | 4.25% |
State Tax Considerations
- Some states have no tax on retirement income (IL, MS, PA)
- Some states are community property states (affects MFS splitting)
- State taxes are deductible on federal returns (SALT, if itemizing)
- Moving between states mid-year usually requires part-year returns in both states