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Personal Income Tax

If you live in Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming, you may not be aware that most of the rest of the country has to file two tax returns every April. Every other state, aside from these lucky seven, requires income tax—over and above federal taxes—from its citizens.

Deductions and exemptions available to the taxpayer can be very detailed and vary greatly from state to state. Because of their number, no attempt has been made here to list them. “As an example, Missouri claims one of the more unusual deductions: fair market value of literary, musical, scholarly, or artistic composition contributed by creator to nonprofit tax-exempt entity (with written appraisal attached), less federal deduction taken” (Source, State and Local Taxes, vol. 2. RIA). The nature of various deductions can change fairly quickly to respond to various social, historical, and political events. For example, for several years starting in the early 1990s, there was a provision to exempt all income of estates of individuals who perished in Operations Desert Storm and Desert Shield.

Even though the trend for the last several years has been to lower taxes, an occasional state has dared to raise their rates. For example, until recently North Dakota had led the states with a rate of 12 percent on income over $50,000, but their rate now tops out at 5.54 percent of income over $319,000! On the other hand, Oklahoma used to have an average top rate of 6.75 percent of income over $20,000 and now taxes income over $240,000 at 10 percent. Most rates in the higher brackets are in the 5 percent to 8 percent range. However, Rhode Island and Vermont tax at rates of up to 25% and 24%, respectively, but the percentages are applied to the total federal tax liability and are not applied directly to the taxpayer’s income.

Ohio ($200,000), Wisconsin ($155,850), New Jersey ($150,000), and Minnesota ($102,030) have the highest income brackets. The intent here is clearly to have the rich pay taxes at higher rates and shoulder more of the load for maintaining the revenue base; a pragmatic view, however, is that higher brackets protect those in the middle from the higher rates at the top. Most states have an upper bracket that is below $60,000.

Six states (and the District of Columbia) have had their income tax schemes challenged in court: Delaware, Illinois, Michigan, Nebraska, Ohio, and Oklahoma. All of these tax codes have been “certified” constitutional by federal courts.

The chart in this chapter deals only with the general principles of state personal income tax. The tax tables are accurate but are very much consolidated and generalized in order to give the reader a broad basis for comparison. The rates listed are, for the most part, for married couples filing jointly or for heads of households. Where this is not the case, the rate is noted. Slightly different rates and tables will apply in most states for couples filing separately or for single individuals. Also, there are countless deductions and exemptions available to the taxpayer that are similar to those available in the federal income tax code. Included here are only the general deductions and exemptions for determining state taxable income. See your state codes or the code of the state in which you are interested for detailed information.

Inside Personal Income Tax