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Beware: These 15 States Have the Highest Income Tax

Kathryn Underwood - Author
By

Jan. 6 2023, Published 11:40 a.m. ET

During tax season, Americans need to consider federal taxes as well as state taxes. There are a few states in which no state income tax is required, and those states make up revenue from other sources. As you prepare your tax returns, here are the 15 states with the highest income tax rates for 2022.

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If you're lucky enough to live in a state free of income taxes, you'll keep a bit more of your income. According to TaxFoundation.org, 43 states levy a personal income tax, which generally is used to fund state government and initiatives. California currently has the highest individual income tax rate, while some other states have rates as low as 2 percent.

What are state income taxes?

State income taxes are levied on the amount of income you earned during a particular tax year and paid to the state in which you live. Some states charge a flat tax rate, while others use a progressive or graduated tax rate. The Center on Budget and Policy Priorities explains that education and healthcare are the two largest spending categories state income tax revenues fund.

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Most Americans will need to file both a federal and a state income tax return.

These 15 states have the highest state income tax.

States with the highest income tax rates may not sound appealing, but keep in mind that many states use a graduated income tax structure. This means that residents don't pay the highest income tax rate on all of their income.

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The highest state income tax rates are as follows:

  1. California: 13.3 percent
  2. Hawaii: 11.0 percent
  3. New York: 10.9 percent
  4. New Jersey: 10.75 percent
  5. District of Columbia: 10.75 percent
  6. Oregon: 9.9 percent
  7. Minnesota: 9.85 percent
  8. Vermont: 8.75 percent
  9. Iowa: 8.53 percent
  10. Wisconsin: 7.65 percent
  11. Maine: 7.15 percent
  12. South Carolina: 7.0 percent
  13. Connecticut: 6.99 percent
  14. Nebraska: 6.84 percent
  15. Montana: 6.75 percent

Note that these are the top tax rates for those states. Some of these use a progressive tax structure, meaning that people in certain income brackets might pay lower percentages. or only pay the maximum amount on a portion of their income. For example, New York's highest rate of 10.9 percent is only on income above $25 million. For individuals earning under $215,400, the top rate is just 6.85 percent.

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The District of Columbia has one of the highest top tax brackets for state income taxes.

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A few states don't have any state income tax.

In just seven states, residents don't have to pay state income taxes. The states are:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Tennessee
  • Texas
  • Wyoming

Plus, Washington state only levies income tax on capital gains income at 7 percent. New Hampshire only levies state income tax on interest and dividend income at 5 percent.

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Keep in mind, even if you live in a state with no personal income tax, you might be paying for the difference in other ways. You might pay higher property taxes, sales taxes, or fuel taxes in some states. Tax season might not be as painful, but other costs throughout the year could make up for it.

There are also other ways your income may be taxed. Local taxes can put a dent in your budget as well.

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Which states use a flat tax structure?

A few states use the flat tax structure to levy state taxes, meaning the same rate is used across all of a person's income. Here are the states with flat tax rates:

  • Colorado: 4.55 percent
  • Illinois: 4.95 percent
  • Indiana: 3.23 percent
  • Kentucky: decreasing to 4.5 percent in 2023
  • Massachusetts: 5 percent
  • Michigan: 4.25 percent
  • North Carolina: 4.99 percent
  • Pennsylvania: 3.07 percent
  • Utah: 4.85 percent

How can you keep your state income taxes low?

Although you do have to pay the income tax rate determined by your state, you can be sure to take advantage of available tax deductions on both the federal and state level. You might prepare your tax returns yourself, or hire a tax professional to ensure you don't pay more taxes than required.

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