In the United States, each state has the right to levy its own income tax. Some states choose to charge an income tax, while others do not. The states that do not charge state income tax are Alaska, Nevada, South Dakota, Washington, Texas, Wyoming, and Florida. All other states impose some sort of income tax. However, taxation amounts vary with each state.
In some states, income tax is not charged to individuals, but corporations are subject to state taxes; Alaska, is one example. However, this state does levy a corporate income tax. Likewise, Florida does not tax individuals, but does tax corporations. New Hampshire and Tennessee do charge a state income tax, but limit it to the taxation of interest and dividends.
The amount of income tax an individual is required to pay depends on where he or she lives. In 2006, Vermont had the highest state income tax, charging more than 9% to its residents. Illinois had the lowest in that same year, charging just 3%. While Illinois levies a flat-rate income tax, many states charge a progressive rate. This means individuals with higher incomes are taxed at a higher rate.
Typically, individuals are responsible for paying not just state income tax, but also federal taxes. The combination of both taxes can add up to quite a hefty sum. For example, if the maximum federal income tax is 35% and a person is required to pay 9% to the sate, he could have to pay up to 44% of his income in taxes. On the other hand, a person living in Texas would have to pay no more that 35%, as that state doesn’t have its own income tax. It is worth noting, however, that state income tax is deductible on the federal level.
Besides federal and state income tax, some cities also levy income taxes on their residents. For example, New York City residents are subject to state and city income tax, as well as federal income tax. This can add up to a considerable amount of taxation. However, some people live in places free of both city and state income tax, such as Miami, Florida, leaving them to pay at the federal level only.