State Tax

State Income taxes, which vary by state, are a percentage of money that you pay to the state government based on the income you make.

Just like the federal government, states impose additional income taxes on your earnings if you have a sufficient connection to the state. Although each state has the authority to create its own system of imposing the tax, most jurisdictions use a similar structure as the federal government. Some states impose the income tax at a flat rate on all taxpayers or they do not even charge the tax at all.

There are seven U.S. states that currently do not have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. The lack of an income tax is not to say that the citizens of these states do not pay any tax because residents in each of these states must pay a variety of other common state taxes. Residents of New Hampshire and Tennessee are also spared from handing over an extra chunk of their paycheck, but they pay tax on dividends and income from investments.

If you are one of the many taxpayers who pay state income tax, the IRS allows you to claim a deduction on your federal tax return. A deduction for state income tax is only available if you are eligible to itemize deductions on your federal return.