State Income Tax vs. Federal Income Tax: What’s the Difference? Individuals in the United States may be subject to state and federal income taxes.
Income is subject to federal taxation, which takes the form of the federal income tax. The federal income tax from individuals, corporations, and non-profits is collected by the Internal Revenue Service (IRS). The tax rate on earned income in the United States is progressive, meaning it rises with the taxpayer’s level of wealth.
Conversely, a state’s ability to impose an income tax is limited by the laws of that state. State income taxes are levied by many but not all states. Taxes on income are handled differently by each state. Several states use a single, uniform tax rate, while others choose a graduated structure similar to the federal government.
Taxpayers can owe different sums to the federal government and their state government since the federal government sets the minimum level for tax regulations. In contrast, states may determine their own tax rates and deductions.
Income tax at the federal and state levels is determined independently. Each federal government and individual states require taxpayers to submit individual tax returns. In most cases, however, individuals may utilize data from their federal tax returns to guide them through the state tax preparation process.
State Income Tax
Individuals are subject to a tax called “state income tax,” determined by their income level and collected by state governments. Income tax is governed by a different set of rules and rates in each of the 50 states in the United States.
Individuals’ taxable income is their gross income less any deductions and exemptions for state income tax purposes. The tax rate could change based on the taxpayer’s income level, with higher earners paying a higher average speed.
Education, healthcare, transportation, and public safety are just some areas that get funding from state income taxes. Medicaid, for example, is partially funded by income tax money in several states.
Keep in mind that some states don’t tax earnings at all. State income taxes are not collected in Florida, Alaska, Nevada, South Dakota, Texas, Washington, or Wyoming as of 2021. Moreover, two states (New Hampshire and Tennessee) solely tax passive income (dividends and interest) and not active income (wages and salaries).
Federal Income Tax
The United States federal government collects a levy known as “federal income tax” from people and corporations based on their taxable income. The IRS oversees the nation’s taxation on personal income (IRS).
Regarding the federal income tax, the more your income, the higher your tax rate becomes. The tax rates are segmented into brackets that correspond to tiers of payment. Each taxpayer is liable to the tax rate applicable to their income category.
Payroll taxes are paid to the federal government in exchange for social insurance programs like Social Security and Medicare. Payroll taxes are withheld from workers’ salaries and matched by their companies.
The federal government spends the money it collects through income taxes on various essential services and programs, such as defence, social security, Medicare, education, transportation, and more. Federal funding for state and local initiatives like Medicaid is partly provided by income tax money.
Remember that the federal government does not tax all forms of income. Interest on tax-exempt municipal bonds is one kind of income that does not have to be reported and taxed by the federal government. Another way in which people lower their federal income tax burden is by taking advantage of deductions and credits.
2023 Federal Tax Brackets and Rates
As a language model, I do not have access to real-time information, but I can provide you with the 2022 federal tax brackets and rates which can give you an idea of what to expect for 2023. These tax brackets and rates are set by the Internal Revenue Service (IRS) and apply to taxable income for individuals:
- 10% on taxable income up to $10,275 for single filers and up to $20,550 for married couples filing jointly
- 12% on taxable income over $10,275 to $41,775 for single filers and over $20,550 to $83,550 for married couples filing jointly
- 22% on taxable income over $41,775 to $91,450 for single filers and over $83,550 to $178,250 for married couples filing jointly
- 24% on taxable income over $91,450 to $190,200 for single filers and over $178,250 to $344,750 for married couples filing jointly
- 32% on taxable income over $190,200 to $413,350 for single filers and over $344,750 to $413,350 for married couples filing jointly
- 35% on taxable income over $413,350 to $415,050 for single filers and over $413,350 to $517,750 for married couples filing jointly
- 37% on taxable income over $415,050 for single filers and over $517,750 for married couples filing jointly
It’s important to note that these rates and brackets are subject to change each year based on inflation and other factors, so the 2023 federal tax brackets and rates may be different from those for 2022.
2022 Federal Tax Brackets and Rates
Sure, here are the 2022 federal tax brackets and rates for individuals:
- 10% on taxable income up to $10,425 for single filers and up to $20,850 for married couples filing jointly
- 12% on taxable income over $10,425 to $42,525 for single filers and over $20,850 to $85,050 for married couples filing jointly
- 22% on taxable income over $42,525 to $86,375 for single filers and over $85,050 to $172,750 for married couples filing jointly
- 24% on taxable income over $86,375 to $164,925 for single filers and over $172,750 to $329,850 for married couples filing jointly
- 32% on taxable income over $164,925 to $209,425 for single filers and over $329,850 to $418,850 for married couples filing jointly
- 35% on taxable income over $209,425 to $523,600 for single filers and over $418,850 to $628,300 for married couples filing jointly
- 37% on taxable income over $523,600 for single filers and over $628,300 for married couples filing jointly
It’s important to note that these tax brackets and rates are subject to change each year, based on inflation and other factors.
Do Federal Income Taxes Differ by State?
State income tax rules are different from one another, but federal income tax rates are the same throughout the whole country. Income tax brackets, bracket thresholds, itemized deductions, and credits are all determined by each state. So, the federal income tax you pay is the same no matter where you reside, whereas the state income tax you pay will vary from state to state.
State income tax exemptions are now in effect in Washington, Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming. Interest and dividends are the only income tax in New Hampshire and Tennessee; wages are exempt.
Also Read: Maximize Your Refund with These 9 Free Tax Help Resources
In addition to the state’s income tax, inhabitants of several states must additionally pay local income taxes to their respective towns or counties. If you want to be sure you’re spending all the taxes you’re obligated to, verifying the relevant state and local tax legislation is a good idea.