State Income Tax

State income tax is a tax states levy on personal and business income. Like federal taxes, the state income tax in most states is progressive. However, tax rates and the degree of progressivity vary from state to state. The state income tax in Illinois is a flat tax. Seven states -Wyoming, Washington, Texas, South Dakota, Nevada, Florida, and Alaska- do not impose a state income tax on personal income. Alaska and Florida apply a state income tax to corporate income, South Dakota applies a state income tax to financial institutions, and Washington applies a business and occupation tax that is functionally a state income tax. Tennessee and New Hampshire have a state income tax for interest and dividend income, but not earned income. States collect their state income tax on top of federal income tax and social security tax. Taxpayers who itemize their federal tax deductions may claim state income tax as a deduction. Nine states allow taxpayers to deduct federal income tax from state income tax.