State Individual Income Tax Rates and Brackets, 2016

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Key Findings

• Individual income taxes are a major source of state government revenue, accounting for 37 percent of state taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. collections.
• Forty-three states levy individual income taxes. Forty-one tax wage and salary income, while two states—New Hampshire and Tennessee—exclusively tax dividend and interest income. Seven states levy no income tax at all.
• Of those states taxing wages, eight have single-rate tax structures, with one rate applying to all taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. . Conversely, 33 states levy graduated-rate income taxes, with the number of brackets varying widely by state.
• States’ approaches to income taxes vary in other details as well. Some states double their single-bracket widths for married filers to avoid the “marriage penaltyA marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples. .” Some states index tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. , exemptions, and deductions for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. ; many others do not. Some states tie their standard deductions and personal exemptions to the federal tax code, while others set their own or offer none at all.

Individual income taxes are a major source of state government revenue, accounting for 27 percent of state tax collections.[1] Their prominence in public policy considerations is further enhanced by the fact that individuals are directly responsible for filing their income taxes, in contrast to the indirect payment of sales and excise taxes. To many taxpayers, the personal income tax is practically synonymous with their own tax burdens.

Forty-three states levy individual income taxes. Forty-one tax wage and salary income, while two states—New Hampshire and Tennessee—exclusively tax dividend and interest income. Seven states levy no income tax at all.

Of those states taxing wages, eight have single-rate tax structures, with one rate applying to all taxable income. Conversely, 33 states levy graduated-rate income taxes, with the number of brackets varying widely by state. Kansas, for example, imposes a two-bracket income tax system. At the other end of the spectrum, two states—California, and Missouri– have 10 tax brackets. Top marginal rates range from Pennsylvania’s 3.07 percent to California’s 13.3 percent.

In some states, a large number of brackets are clustered within a narrow income band; Missouri taxpayers reach the state’s tenth and highest bracket at $9,001 in annual income. In other states, the top marginal rate kicks in at $500,000 (New Jersey) or even $1,000,000 (California, if one counts the state’s “millionaire’s tax” surcharge).

States’ approaches to income taxes vary in other details as well. Some states double their single-bracket widths for married filers to avoid the “marriage penalty.” Some states index tax brackets, exemptions, and deductions for inflation; many others do not. Some states tie their standard deductions and personal exemptions to the federal tax code, while others set their own or offer none at all. In the following table, we provide the most up-to-date data available on state individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rates, brackets, standard deductions, and personal exemptions for both single and joint filers.

Notable Individual Income Tax Changes in 2016

Several states changed key features of their individual income tax codes between 2015 and 2016. These changes include:

• Arkansas lowered its top marginal rate from 7 percent to 6.9 percent on income over $35,100. Also, it adopted a new tax schedule for individuals earning between $21,000 and $75,000 in income. The state now has three tax schedules, with differing rates, depending on income.[2]
• Temporary tax increases expired in Hawaii. The three top rate brackets were eliminated, and the top marginal rate fell from 11 percent to 8.25 percent.[3]
• Maine lowered tax rates and added a third tax bracket. Rates were cut from 6.5 and 7.95 percent to 5.8, 6.75, and 7.15 percent.[4]
• Massachusetts’s rate fell from 5.15 percent to 5.1 percent.[5]
• Ohio’s tax rates decreased with the top marginal rate falling from 5.333 to 4.997 percent.[6]

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