State Income Tax
Income tax levied by individual states, in addition to federal income tax. Rates and structures vary widely — some states have no income tax, while others have rates up to 13.3%.
State income tax is a tax imposed by most US states on individual and/or business income, collected in addition to federal income tax. As of 2025, 41 states and the District of Columbia impose a broad-based individual income tax. Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax on wages (New Hampshire and Washington tax only certain investment income).
State income tax systems fall into three categories: progressive (with multiple brackets and increasing rates), flat (a single rate applied to all income), and no-income-tax states. Tax rates vary dramatically — states like California top out at 13.3%, while flat-tax states like Pennsylvania charge 3.07% and Colorado charges 4.4%.
State income taxes paid are deductible on your federal return as part of the SALT deduction. Under OBBBA (2025+) the cap is $40,000 ($20,000 MFS), phasing out above $500,000 MAGI ($250,000 MFS) toward a $10,000 floor; pre-OBBBA (2018–2024) the cap was $10,000. Your state of residence determines which state taxes your income, although you may also owe tax to states where you work or earn income, subject to credits for taxes paid to other states.
Related Terms
Progressive Tax
A tax system where rates increase as income rises, with higher earners paying a larger percentage. The US federal income tax and most state income taxes use progressive brackets.
Flat Tax
A tax system with a single rate applied to all income levels. Several US states use flat income tax rates, including Illinois (4.95%), Colorado (4.4%), and Pennsylvania (3.07%).
SALT Deduction
An itemized deduction for state and local taxes paid, including income tax (or sales tax) and property tax. Under OBBBA (2025+), capped at $40,000 per return ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor. Pre-OBBBA (2018–2024) the cap was $10,000 flat.
SALT Cap
The annual limit on the federal deduction for state and local taxes. Pre-OBBBA (2018–2024): $10,000. OBBBA (2025+): $40,000 ($20,000 MFS) with phaseout above $500,000 MAGI to a $10,000 floor.