Introduction to State Income Taxes in 2025
When it comes to your paycheck, where you live can have a significant impact on your take-home pay. State income taxes vary dramatically across the United States, with some states taking a substantial portion of your earnings while others take none at all. This article compares state income tax rates for 2025 and explains how they affect your net pay.
States with No Income Tax in 2025
In 2025, nine states continue to have no state income tax on wages and salaries:
- Alaska - Relies on oil revenues instead of income tax
- Florida - Funds government through sales tax and property tax
- Nevada - Generates revenue from tourism and gambling taxes
- New Hampshire - Only taxes interest and dividend income, not wages
- South Dakota - Relies on sales tax for revenue
- Tennessee - Like New Hampshire, only taxes investment income
- Texas - Funds government through sales tax and property tax
- Washington - Has high sales tax but no income tax
- Wyoming - Uses mineral royalties and investment income
For residents of these states, the absence of state income tax means more take-home pay compared to residents of states with income tax, all else being equal. For example, a worker earning $75,000 in Texas or Florida will have a higher net pay than someone earning the same amount in California or New York.
States with Flat Income Tax Rates in 2025
Some states apply a single tax rate to all income levels, regardless of how much you earn. For 2025, states with flat income tax rates include:
| State | 2025 Flat Tax Rate |
|---|---|
| Colorado | 4.4% |
| Illinois | 4.95% |
| Indiana | 3.15% |
| Kentucky | 4.5% |
| Massachusetts | 5% |
| Michigan | 4.25% |
| North Carolina | 4.75% |
| Pennsylvania | 3.07% |
| Utah | 4.85% |
Flat tax systems are simpler to understand but may be considered less progressive since they tax low-income earners at the same rate as high-income earners.
States with Progressive Income Tax Rates in 2025
Most states use progressive tax systems, where tax rates increase as income rises. Here are some examples of states with the highest top marginal rates for 2025:
| State | 2025 Top Marginal Rate | Income Threshold |
|---|---|---|
| California | 13.3% | Over $1 million |
| Hawaii | 11% | Over $200,000 |
| New Jersey | 10.75% | Over $1 million |
| New York | 10.9% | Over $25 million |
| Oregon | 9.9% | Over $125,000 |
| Minnesota | 9.85% | Over $183,340 |
These high-tax states typically provide more extensive government services but leave workers with significantly less take-home pay compared to no-tax or low-tax states.
Impact on Your Paycheck: A Comparison
To illustrate how state income taxes affect your take-home pay, let's compare the net pay for someone earning $100,000 annually in different states in 2025:
Annual Salary: $100,000 (Single filer with standard deduction)
| State | State Income Tax | Annual Take-Home Pay* | Monthly Take-Home Pay |
|---|---|---|---|
| Texas (No tax) | $0 | $73,129 | $6,094 |
| Colorado (Flat) | $4,400 | $68,729 | $5,727 |
| Georgia (Progressive) | $5,500 | $67,629 | $5,636 |
| California (Progressive) | $8,200 | $64,929 | $5,411 |
| New York (Progressive) | $6,800 | $66,329 | $5,527 |
*After federal income tax, FICA, and state income tax. Excludes local taxes and other deductions.
As you can see, the difference in take-home pay between a no-tax state like Texas and a high-tax state like California can be over $8,000 per year on a $100,000 salary. That's nearly $700 in additional monthly take-home pay just from state tax differences.
Other State Tax Considerations for 2025
Local Income Taxes
In addition to state income taxes, some localities impose their own income taxes. Major cities with local income taxes include:
- New York City (up to 3.876%)
- Philadelphia (3.8809% for residents)
- San Francisco (0.38% payroll tax paid by employers)
- Detroit (2.4% for residents)
- Columbus, Ohio (2.5%)
Reciprocity Agreements
If you live in one state but work in another, you may benefit from tax reciprocity agreements. These agreements allow you to pay income taxes only to your state of residence, not your work state. For 2025, many neighboring states maintain these agreements to simplify tax filing for commuters.
Remote Work Considerations
With remote work becoming more common, state tax implications have grown more complex. For 2025, some states continue to assert tax claims based on "convenience of employer" rules, potentially subjecting remote workers to double taxation if they work remotely for an employer based in another state.
Frequently Asked Questions About State Income Taxes
Q: If I move mid-year, how are my state taxes calculated?
A: You'll typically file part-year resident tax returns in both states, paying taxes based on income earned while residing in each state.
Q: Do states with no income tax have higher taxes in other areas?
A: Often, yes. No-income-tax states typically compensate with higher sales taxes, property taxes, or other fees. However, the overall tax burden is generally still lower than in high-income-tax states.
Q: How do state taxes affect retirement income in 2025?
A: Treatment of retirement income varies widely by state. Some states exempt Social Security benefits, pension income, or retirement account withdrawals, while others tax them fully.
Q: Can I deduct state income taxes on my federal return in 2025?
A: Yes, but the deduction for state and local taxes (SALT) remains capped at $10,000 for 2025 under current tax law.
Conclusion
State income taxes can significantly impact your take-home pay and should be an important consideration in financial planning. While no-tax states like Texas and Florida offer clear advantages for maximizing net pay, other factors like cost of living, job opportunities, and quality of public services should also factor into any relocation decision.
For 2025, understanding your state's tax structure helps you better plan your finances and potentially identify opportunities to optimize your tax situation. Whether you're considering a move to a different state or simply want to understand why your paycheck looks the way it does, state income tax differences matter.
To calculate your exact take-home pay based on your state of residence, use our state-specific paycheck calculators, which account for federal taxes, FICA, and the specific tax rules of your state.