In the United States, a state income tax is a tax that is collected by a state. Some states collect a flat tax from everyone, while other states collect graduated taxes determined by a taxpayer's income. Usually, state income tax is deducted right from a person's paycheck, but some people, like freelancers and small business owners, may have to pay taxes on their own. The tax money that is collected is used to fund state projects and pay state employee wages.
Income taxes are one form of tax collected by a government. The amount of taxes collected is usually determined by a person's or a business' income. Typically, those with high incomes will pay more in taxes. While federal income taxes are collected by the federal government, state income taxes are collected by the individual states.
The majority, though not all, of the states in the United States collect a state income from residents. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not charge a state income tax. New Hampshire and Tennessee, on the other hand, only collected taxes on income from interest and stocks.
States use a variety of methods to determine how much money taxpayers owe in state income tax. Some states take a small percentage of an income, regardless of how much that is. This is sometimes referred to as a flat tax. Residents who live in a state that collects a flat tax of 3% would pay this percentage whether they made $10,000 US Dollars (USD) or $100,000 USD.
Some states, however, determine state income tax rates based on income. This is sometimes known as a graduated or progressive tax. States that use this method typically collect a higher percentage from higher incomes. For example, a person who makes $10,000 USD may only have to pay 2% of that income to his state government, while a person who makes $100,000 may have to pay 6%.
Most Americans who pay a state income tax never actually see that money. It is usually automatically withheld from their wages. Some individuals, however, may need to keep meticulous financial records and pay state and federal income tax at the beginning of the next year. Freelancers and business owners, for instance, usually pay their taxes either quarterly or at the end of the year.
The state income tax collected from residents is often used to help fund a number of state projects. State roads, highways, and parks are often built and maintained with this money, for instance. This money is also used to pay the wages of the men and women who build and maintain these.
