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.
American Tax Services Providers
American tax services providers offer a wide range of services to both individual taxpayers and corporations including tax preparation, accounting and payroll services, and business consultation, among others. H&R Block, Inc. (NYSE:HRB), CBIZ, Inc. (NYSE:CBZ), and Intuit Inc. (NASDAQ:INTU) are some of the leading tax services providers in the US.
CBIZ, Inc. (NYSE:CBZ) is a leading tax, accounting, and advisory services firm. On March 6, CBIZ, Inc. (NYSE:CBZ) announced the acquisition of technology solutions provider CompuData, Inc. Founded in 1971, CompuData offers top-end technology solutions to small and midsize organizations with services including accounting ERP software, cloud computing, managed IT, and security solutions to clients. The company generates around $20 million in annual revenue. Here is what the CEO of CBIZ, Inc. (NYSE:CBZ) said:
“We have experienced an increasingly high demand across the country for precisely the suite of services that CompuData has built an impressive reputation providing. In the CompuData team, we have found a partner that is equally invested in and dedicated to its clients’ success by offering essential solutions that they rely on. For these reasons and more, we are thrilled to welcome CompuData to CBIZ.”
H&R Block, Inc. (NYSE:HRB) is a top American tax services preparation company. In an announcement on April 5, H&R Block, Inc. (NYSE:HRB) reported that over five million people joined H&R Block, Inc. (NYSE:HRB) in 2023 for tax filing products and services. H&R Block, Inc.’s (NYSE:HRB) tax pro services start at $89. The tax service provider has over 60,000 tax professionals at your service. There are 9,000 offices across the US which means a location in almost every state and within five miles of a majority of US citizens.
Intuit Inc. (NASDAQ:INTU) owns some of the leading accounting and tax management software including Credit Karma, TurboTax, and Quickbooks, among others. On February 22, the company reported its earnings for the second quarter of 2024. Intuit Inc. (NASDAQ:INTU) reported earnings per share of $2.63, beating consensus estimates by $0.32. Here are some of the comments from the company’s Q2 2024 earnings call:
“We had another strong quarter and have great momentum innovating on our platform. We’re executing on our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. Second quarter revenue grew by 11%, and we are on track to achieve our fiscal year 2024 full year guidance of 11% to 12% revenue growth while expanding operating margins. Let’s start with tax. We are confident in our innovation and game plan to win, and are reiterating our full fiscal year guidance of 7% to 8% revenue growth for the Consumer Group. Tax preparation represents a $35 billion TAM. This includes $31 billion within the assisted consumer and business tax categories, which we have barely started to penetrate.”
On April 2, Intuit Inc. (NASDAQ:INTU) launched a new financial literacy program, Intuit for Education. Around 85% of high school students in the US are interested in learning about financial topics. Therefore, Intuit Inc. (NASDAQ:INTU) will assist school teachers and students with free personal and entrepreneurial finance courses. Intuit Inc. (NASDAQ:INTU) aims to help 50 million students become financially literate, capable, and confident by 2030.
Tax services companies play a vital role through their various educational and business consultancy programs. With this context, let’s take a look at the 15 states with no income or low income tax rates.
15 States with No or Low Income Tax Rates
Our Methodology
To compile our list of the 15 states with no or low income tax rates, we gathered tax rates data from the Tax Foundation. We have ranked states based on their top personal and corporate income tax rates, as of 2024. The states with minimum top personal income tax rates are ranked in ascending order. The states with similar top personal income tax rates are ranked based on top corporate income tax rates. Please note that states with no or low income tax rates may rely on other taxes such as sales tax to compensate for tax revenue. Therefore, we have included state sales tax in our rankings. In case both personal and corporate income tax rates are the same, we have used state sales tax rates as a tie-breaker.
15 States with No or Low Income Tax Rates
15. Kentucky
Personal Income Tax Rates (2024): 4%
Corporate Income Tax Rates (2024): 5%
Sales Tax Rates (2024): 6%
Kentucky has one of the lowest income tax rates in the US. The state reduced its flat personal income tax rate from 4.50% to 4%. Kentucky ranks 15th among the states with no or low income tax rates.
14. Ohio
Personal Income Tax Rates (2024): 3.50%
Corporate Income Tax Rates (2024): 0%
Sales Tax Rates (2024): 6%
Ohio has embedded two marginal tax rates into one for individual income, lowering the rate from 3.99% to 3.50%. Ohio is one of the top states with no or low income tax rates.
13. Pennsylvania
Personal Income Tax Rates (2024): 3.07%
Corporate Income Tax Rates (2024): 8.49%
Sales Tax Rates (2024): 6%
Pennsylvania has a top personal income tax rate of 3.07%. The state’s corporate income tax was reduced from 8.99% in 2023 to 8.49% in 2024.
12. Indiana
Personal Income Tax Rates (2024): 3.05%
Corporate Income Tax Rates (2024): 4.90%
Sales Tax Rates (2024): 7%
Indiana has a top personal income tax rate of 3.05% and a corporate income tax rate of 4.90%. Indiana ranks 12th among the states with no or low income tax rates.
11. New Hampshire
Personal Income Tax Rates (2024): 3%
Corporate Income Tax Rates (2024): 7.50%
Sales Tax Rates (2024): 0%
New Hampshire has a personal income tax rate of 3% and a 7.50% corporate income tax rate. New Hampshire is one of the states with low income tax rates.
10. North Dakota
Personal Income Tax Rates (2024): 2.90%
Corporate Income Tax Rates (2024): 4.31%
Sales Tax Rates (2024): 5%
North Dakota ranks 10th among the states with no or low income tax rates. North Dakota has a graduated personal income tax rate ranging from 1.10% to 2.90%.
9. Arizona
Personal Income Tax Rates (2024): 2.50%
Corporate Income Tax Rates (2024): 4.90%
Sales Tax Rates (2024): 6%
Arizona has a flat personal income tax rate of 2.50%. With a corporate income tax rate of 4.90%, Arizona ranks among the states with no or low income tax rates.
8. Alaska
Personal Income Tax Rates (2024): 0%
Corporate Income Tax Rates (2024): 9.40%
Sales Tax Rates (2024): 0%
Alaska does not have a personal income tax and imposes a corporate income tax rate between 2% and 9.40%. Alaska is one of the states with no income tax rates.
7. Tennessee
Personal Income Tax Rates (2024): 0%
Corporate Income Tax Rates (2024): 6.50%
Sales Tax Rates (2024): 7%
Tennessee has a flat corporate income tax rate of 6.50% and zero personal income tax rate. Tennessee also levies a gross receipts tax and ranks seventh among the states with no or low income tax rates.
6. Florida
Personal Income Tax Rates (2024): 0%
Corporate Income Tax Rates (2024): 5.50%
Sales Tax Rates (2024): 6%
Florida does not have a personal income tax rate and levy a flat corporate income tax rate of 5.50%. Florida is one of the top states with no or low income tax rates in 2024.
Click here to see 5 States with No or Low Income Tax Rates.
Suggested Articles:
- 25 Richest Billionaires in Energy Industry
- 15 Countries with Highest Percentage of Millionaires in the World
- 10 Unstoppable Stocks That Will Make You Richer
Disclosure: None. 15 States with No or Low Income Tax Rates is originally published on Insider Monkey.