State Income Tax Comparison: Which States Tax the Most and Least?
Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. California has the highest top rate at 13.3% on income above $1,000,000, while flat-tax states like Arizona (2.5%) tax all income at one rate.
States With No Income Tax
Nine states have no state income tax on wages: Alaska, Florida, Nevada, New Hampshire (taxes interest and dividends only until 2027), South Dakota, Tennessee, Texas, Washington (taxes capital gains above $250,000), and Wyoming. While these states save you from income tax, they may have higher property taxes, sales taxes, or other fees to fund state operations. Always consider the total tax burden — not just income tax — when comparing states.
States With Flat Tax Rates
Several states use a flat (single-rate) tax system where all taxable income is taxed at the same rate regardless of income level. As of 2026: Arizona (2.5%), Colorado (4.4%), Georgia (5.49%), Idaho (5.8%), Illinois (4.95%), Indiana (3.05%), Kentucky (4.0%), Michigan (4.25%), Mississippi (4.7%), North Carolina (4.5%), Pennsylvania (3.07%), and Utah (4.55%). Flat-tax states are generally simpler to file in but can be less progressive than bracket-based states.
States With Progressive Tax Brackets
California has the highest top marginal rate at 13.3% (for income above $1,000,000). Other high-tax progressive states include Hawaii (11%), New York (10.9%), New Jersey (10.75%), Oregon (9.9%), and Minnesota (9.85%). These states tax higher earners at higher rates — but most have multiple brackets, meaning moderate-income residents often pay much lower effective rates. New York's top rate only applies above $25 million; rates below $215,000 range from 4% to 6%.
How State Taxes Affect Financial Decisions
State income taxes influence major financial decisions: where to live in retirement (moving from CA to NV can save tens of thousands annually), where to establish business residency, and whether to accelerate or defer income. However, consider the full picture — states without income tax often have higher property taxes (Texas property tax rate is among the nation's highest), sales taxes, or insurance costs. For high earners, the income tax savings of a zero-tax state typically outweigh the other costs.
Reciprocity Agreements and Remote Work
Many bordering states have reciprocity agreements allowing residents who work across state lines to pay tax only in their state of residence (not where they work). Common agreements: WI–IL, PA–NJ, MD–VA–DC, and several midwest states. For remote workers, tax rules vary by state — some tax you based on where you physically perform the work, others based on your employer's location. Some states have 'convenience of the employer' rules that may tax remote workers even if they never set foot in the state.
Frequently Asked Questions
Which states have no income tax?
Nine states have no income tax on wages: Alaska, Florida, Nevada, New Hampshire (interest and dividends only until 2027), South Dakota, Tennessee, Texas, Washington (capital gains above $250,000), and Wyoming. These states typically rely more on property or sales taxes, so compare the total tax burden before relocating.
Do I pay income tax in two states if I work remotely?
It depends. Most states tax based on where you physically perform the work; a few tax remote workers based on the employer's location under 'convenience of the employer' rules. Reciprocity agreements between bordering states let residents pay tax only in their state of residence. Check both states' rules and your employer's policies.
Are state income taxes deductible on my federal return?
Yes, but only as part of the state and local tax (SALT) deduction, which is capped at $10,000 per return. If you take the standard deduction or your SALT payments exceed the cap, you may not benefit fully — high earners in high-tax states often exceed the cap quickly.
Is moving to a no-income-tax state worth it?
Often yes for high earners, but not always. Zero-tax states like Texas tend to have higher property taxes and insurance costs, and you must also establish genuine residency (driver's license, voter registration, primary home) to claim it. Run a full cost comparison of property, sales, and income tax before deciding.