Some states have other withholding mechanisms, particularly with respect to partnerships. States with an income tax require employers to withhold state income tax on wages earned within the state. All states have a statute of limitations prohibiting the state from adjusting taxes beyond a certain period following filing returns.Īll states have tax collection mechanisms. Procedures and deadlines vary widely by state.

Most tax authorities have appeals procedures for audits, and all states permit taxpayers to go to court in disputes with the tax authorities. The deadline for filing returns varies by state and type of return, but for individuals in many states is the same as the federal deadline, typically April 15.Įvery state, including those with no income tax, has a state taxing authority with power to examine (audit) and adjust returns filed with it. Many states require that a copy of the federal income tax return be attached to their state income tax returns. Returns are also required by partnerships doing business in the state. Income tax is self assessed, and individual and corporate taxpayers in all states imposing an income tax must file tax returns in each year their income exceeds certain amounts determined by each state. These include analogs to the federal Alternative Minimum Tax in 14 states, as well as measures for corporations not based on income, such as capital stock taxes imposed by many states. Some states have alternative measures of tax. In this respect, individuals and corporations not resident in the state generally are not required to pay any income tax to that state with respect to such income. Most states tax capital gain and dividend income in the same manner as other investment income. For example, many states do not allow the additional first year bonus depreciation deduction. Many require that depreciation deductions be computed in manners different from at least some of those permitted for federal income tax purposes. All states taxing business income allow deduction for most business expenses. Most states provide for modification of both business and non-business deductions. States uniformly allow reduction of gross income for cost of goods sold, though the computation of this amount may be subject to some modifications. Many states provide tax exemption for certain other types of income, which varies widely by state. Most states also exempt income from bonds issued by that state or localities within the state as well as some portion or all of Social Security benefits. States are prohibited from taxing income from federal bonds or other federal obligations. Gross income generally includes all income earned or received from whatever source with some exceptions. characterization of business entities as either corporations, partnerships, or disregarded entities.

timing of recognition of income and deductions,.

Most states conform to federal rules for determining: Tax rates may differ for individuals and corporations. The tax rate may be fixed for all income levels and taxpayers of a certain type, or it may be graduated. State income tax is allowed as an itemized deduction in computing federal income tax, subject to limitations for individuals.īasic principles State Tax Burdens 2022 Many states also administer the tax return and collection process for localities within the state that impose income tax. States allow a variety of tax credits in computing tax.Įach state administers its own tax system. Many states allow a standard deduction or some form of itemized deductions. In computing the deduction for depreciation, several states require different useful lives and methods be used by businesses. Most states do not tax Social Security benefits or interest income from obligations of that state. Taxable income conforms closely to federal taxable income in most states with limited modifications. These tax rates vary by state and by entity type.

State income tax is imposed at a fixed or graduated rate on taxable income of individuals, corporations, and certain estates and trusts. Forty-seven states and many localities impose a tax on the income of corporations. Eight states impose no state income tax, and a ninth, New Hampshire, imposes an individual income tax on dividends and interest income but not other forms of income (though it will be phased out by 2027). Forty-two states and many localities in the United States impose an income tax on individuals. Some local governments also impose an income tax, often based on state income tax calculations. In addition to federal income tax collected by the United States, most individual U.S.

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