Understanding Federal & State Income Taxes

The U.S. federal government enforces income tax laws that apply to all individuals and businesses across the country, regardless of location. Tax rates range from 10% to 37%, depending on income level and filing status. Taxable income is determined after deductions and exemptions, and the final tax liability may result in a refund (if overpaid) or a payment (if underpaid).

While federal tax rates are uniform nationwide, state taxes vary significantly. Some states have a flat tax rate, while others use a progressive system where higher earners pay more. Additionally, some states impose no income tax, but they may generate revenue through property taxes, sales taxes, and other means. Understanding these differences is essential, especially when relocating for work.

State vs. Federal Income Taxes: Key Differences

✔ Federal income tax is collected by the IRS, while state income tax is collected by individual state governments.

✔ Federal tax rates range from 10% to 37%, while states may have flat rates, progressive brackets, or no income tax at all.

✔ Working in one state and living in another can complicate tax filing, requiring multi-state tax reporting.

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