State Vs. Federal Taxes

May 7th 2016

Federal Income Tax

Every United States tax resident is required to file a federal income tax return. The Internal Revenue Service (IRS) is the federal government department that controls all guidelines and regulations for this process. The IRS supplies all forms and documentation for you and your employer, and when you file your taxes, your return goes to the IRS.

Most people pay taxes over the course of the tax year. Typically, employers will withhold a portion of their employees' paychecks. Each pay period, a portion of your income pays your annual tax obligation. To some extent, you can control your tax contributions when you submit your W-4 Employee Withholding Certificate form to your employer. Most people submit this form shortly after they are hired and before they receive their first paycheck.

State Income Tax

Many states require you to submit a state return in addition to your federal return. Many states will base your state tax rate on your federal tax rate. Other states tax your income based on a flat rate, flat fee, or earned interest. In some situations, you will need to file separate forms with your employer.

If you have any questions about your state income taxes, you should check by contacting or researching the department that controls tax policies in your state. You can also talk to your company's human resources department.

States raise revenue through personal income taxes. In general, the states with low income tax will try to raise funds through other means, including higher sales tax rates. For 2010, the states of Hawaii and Oregon have the highest maximum rate at 11%. Pennsylvania imposes the lowest maximum rate at 3.7%.

Income Taxes by State

In the United States, 41 states impose a state income tax. The seven states that levy no personal income tax include the following:

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

The following two states levy a personal income tax on dividends and earned interest only:

  • New Hampshire
  • Tennessee

Seven states impose a flat rate personal income tax, and 34 states levy progressive income tax rates. The 2010 values for these tax rates are as follows:

  • Colorado: 4.63%
  • Illinois: 5.0% (fluctuating year-to-year from 3.0 to 5.0 then to 3.25 in 2025)
  • Indiana: 3.4%
  • Massachusetts: 5.3%
  • Michigan: 4.35%
  • Pennsylvania: 3.07%
  • Utah: 5%

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