In fact, only nine states in the US don't levy state income taxes:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
State tax rates vary widely across the country. Some states don’t levy income taxes, and in others, taxpayers could end up paying more than 13%.
Unlike federal income tax, which, again, is paid to the IRS, your state income taxes are paid to the state and go toward funding local services. To pay your state income tax, you’ll need to file a state tax return alongside your federal tax return, both of which can be completed online.
Federal and state income taxes also differ in the rates they impose. This means that while you might pay both state and federal income taxes, you will likely not be paying the same amount for each.
Can I owe state taxes but not federal taxes?
You can owe your state taxes while being up to date with your federal tax bill because the state tax brackets are different. So, if your income changes, it may not impact the federal taxes you pay but may change the amount you owe at the state level. It depends on your specific financial situation.
Changes to your income can also impact your state income tax credits and, as such, change what you owe. Some other situations that may lead to a change in your state taxes include:
- Changing jobs or getting a promotion or pay raise
- Picking up an additional job
- Being or becoming self-employed and underpaying estimated tax
- Changes to your married state (if you become married, divorced, or widowed)
- Having a child
- Lottery or gambling winnings
- Buying or selling a home
Many different factors can impact the amount of taxes you owe, and a financial advisor can help you ensure you’re paying the correct amount of state tax and taking advantage of any savings you might be entitled to. Find a financial advisor today.
How much do I owe in state taxes?
To determine how much you owe in state taxes, you should check the guidance from your state tax authority. You can use this guidance to determine how much you owe based on your income bracket.
In addition to considering your income, many states offer tax credits and subsidies, which can lower your tax burden. However, tax calculations can be tricky, so it may be a good idea to work with an expert if you have any questions or concerns about paying the right amount of tax.
It’s also important to remember that paying your state taxes late can result in fines and penalties from your state tax agency.
Why do I need to pay state taxes?
Your federal income taxes fund nationwide spending on Social Security, defense, and large transportation projects.
Your state also needs revenue to pay for education, the local police force, and other local government services not paid for by the federal government.
The nine states that choose not to collect a state income tax may raise revenue through other means, such as relatively high property and sales taxes.
What other types of taxes do I pay?
Many states use other state taxes to raise revenue. These can include:
- State sales tax: this may be imposed on all transactions, or on certain goods and services, such as buying alcohol or tobacco
- Motor tax
- Estate tax
- Property tax
- Inheritance tax
- Tax on retirement income
It’s important to be aware of all the state-level taxes you’re liable to pay and budget accordingly, as these can quickly add up and eat into your income. However, the primary thing to be aware of is your state income tax liability, which you’ll need to pay alongside your federal income tax.
How much capital gains tax do I pay?
Capital gains tax (CGT) is incurred on the profit an individual makes when you sell an asset or investment. Capital gains are taxed in one of two ways:
- Long-term capital gains tax: You pay long-term capital gains tax on assets you sell after owning them for a year or more.
- Short-term capital gains tax: This is paid on assets you’ve owned for under a year.
Short-term capital gains are taxed as ordinary income, which depends on your specific federal tax bracket. While long-term capital gains have their own specific tax rates: 0%, 15%, and 20%, depending on your tax filing status, and the size of your return.
A majority of US states also have their own capital gains tax rates, with most states taxing capital gains as income. You can calculate your tax liability with our handy capital gains tax calculator.
How can I reduce my state income tax liability?
There are many ways to ensure that you file your state taxes efficiently and pay as little as possible within the confines of your state’s tax laws.
For one, planning ahead for the state tax filing deadline can help you to avoid paying the wrong amount. If you are employed, check with your employer about your tax withholding. If you withhold too little or too much, you can adjust your withholding amount by filling out a new W-4 form.
As mentioned, there are some state tax credits available. There can also be ways to organize your finances in a tax-efficient way. Your state tax agency may be able to provide you with guidance about available tax credits.
Also, if your familial circumstances have changed - maybe you got married, had a child, or purchased a home - remember that these may change how much you owe, too.
Get expert financial advice
State and federal taxes apply very differently, meaning you can end up owing money for your state taxes. However, substantial savings can also be made via state tax credits.
To ensure you are paying the correct amount of tax, Unbiased can match you with a financial advisor who can review your finances and help you manage your taxes.
Start by answering a few questions, and Unbiased will find you’re an SEC-regulated financial advisor perfectly suited to meet your needs.