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15 States with No or Low Income Tax Rates

Ali Hassan
9 min read

In This Article:

In this article, we will look at 15 states with no or low income tax rates. If you want to skip our detailed analysis, head straight to 5 States with No or Low Income Tax Rates.

Taxation in America: An Outlook 

The US government generates revenue from various taxes and individual income taxes are a major source of state government revenue. There are almost eight states in the US with no income tax and six states with no corporate income tax. In addition, numerous states have a top marginal income tax rate below 4%. There are a number of tax brackets, varying widely by state. Almost 29 states and the District of Columbia levy graduated-rate income taxes. Thirty-four states and the District of Columbia impose personal income taxes, while forty-one states tax wage and salary income. Hawaii has 12 tax brackets, the most in the US. In some states, married filers have the liberty to double their single-filer bracket widths to avoid the marriage penalty. In some states, many tax brackets are clustered within a limited income band. For instance, taxpayers in Virginia reach the state’s highest bracket at $17,000 in taxable income. Whereas, in many states, the top rate begins at a much higher rate of marginal income. California, Massachusetts, New Jersey, New York, and the District of Columbia are some of the states where the top rate starts at or above $1 million.

There are forty-four states that levy corporate income tax. States including Nevada, Ohio, Texas, and Washington impose gross receipts taxes instead of corporate income taxes. Whereas, South Dakota and Wyoming do not levy either a corporate income tax or a gross receipts tax. North Carolina has a minimum corporate income tax rate of a flat 2.5% compared to Minnesota which has the highest top marginal rate of 9.8%. Along with Minnesota, Alaska, Illinois, and New Jersey have 9% or higher top marginal corporate income tax rates.

A total of thirty-four states went through notable tax changes in 2024, as we mentioned in our article about the 16 states with income tax cuts in 2024. The major tax changes were implemented on January 1, 2024. The Internal Revenue Service (IRS) has changed over 60 tax provisions for tax year 2024 and will apply to income tax returns filed in 2025. The top marginal tax rate remains unchanged at 37% from 2023 for both single and married taxpayers. The top tax rate of 37% will apply to incomes greater than $609,350 for individual taxpayers and $731,200 for married couples filing jointly.

According to the US Census Bureau, the state government revenue in the US accounted for 38% in fiscal year 2022. The US government mainly generates its revenue from income taxes. As of April 15, 2024, the combined contribution of personal and corporate income taxes is around $1.28 trillion in fiscal year 2024, according to the US Treasury database. The combined personal and corporate income taxes account for almost 58% of the US government’s total revenue. Whereas, social security and medicare taxes account for approximately 37% of the total revenue. The total revenue has increased from $4.19 trillion in 2015 to $4.44 trillion in 2023. While, the US revenue-to-GDP has declined from 18% to 16% since 2015.

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