State income tax varies from none at all to a double-digit top rate, and it applies to where the work is performed rather than where the employer sits. On a professional salary the difference between a no-tax state and a high-tax one can be several per cent of take-home — enough to reverse a comparison between two offers that looked clearly separated on gross.
The number that is not in your salary comparison
State income tax ranges from nothing to over ten per cent at the top of the scale. On a $100,000 salary that is a difference of several thousand dollars a year, before any other cost is considered.
It is also the easiest adjustment to make and the one most often skipped, because base salary is what appears in the offer and everything else takes a calculation.
The states with no income tax on wages
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming levy no state income tax on wages. New Hampshire taxes some investment income but not wages.
That is a real advantage and it is not free. States raise revenue somehow, and the substitutes are usually property tax, sales tax, or lower public spending — which is why the comparison has to include more than one line.
Why the headline rate is the wrong number
Most states with an income tax use brackets, so the top rate applies only to income above a threshold. Your effective rate — total tax divided by total income — is always lower than the headline, sometimes substantially.
States also differ on deductions, exemptions and whether they follow federal treatment of retirement contributions. Two states with the same headline rate can produce different bills on identical income.
Local taxes are the ones people miss
Several cities and counties levy their own income tax on top of the state. That layer rarely appears in state-by-state comparisons and it can be worth more than the difference between two states.
Check the city as well as the state, particularly in the Midwest and the Northeast where local income taxes are most common.
Working in one state and living in another
Generally you owe tax where you work and where you live, with a credit preventing double taxation — but the mechanics vary and some state pairs have reciprocity agreements that simplify it considerably.
If you are considering a move that puts a state line between home and office, that is worth checking before signing rather than discovering at filing time. The answer occasionally changes whether the move makes sense.
Where remote work complicates it
Working remotely from a different state than your employer raises questions about which state can tax the income, and a few states apply rules that tax you as though you worked at the office regardless of where you sat.
This area is genuinely unsettled and varies by state pair. If you are remote across a state line, it is one of the few situations where paying for an hour of professional advice is straightforwardly worth it.
Running the comparison properly
Take each offer’s gross. Subtract estimated state and local income tax using effective rates rather than headline ones. Subtract your realistic housing cost in each place, which usually dominates everything else. Then compare.
What generally survives is a smaller gap than the raw salaries suggested and a larger one than the no-income-tax enthusiasm implies. Both extremes are wrong and the arithmetic is not difficult.
What tax should not decide
Whether the market for your occupation is deep where you are going. A few thousand dollars of tax saving is quickly erased by a thin local market if the job ends.
Check your occupation’s concentration and median in the destination first. Tax is a real factor and it is the last one to apply, not the first.
This is general information rather than tax advice, and your own position depends on your filing status, income mix and the specific states involved.
Common questions
Which state taxes my income?
Generally the one where the work is performed. Some neighbouring state pairs have reciprocity agreements that assign it to your state of residence instead.
Is a no-income-tax state always better?
No. Those states fund themselves through sales, property and other taxes, which appear in the local price level. Applying the tax rate alone tells you the flattering half of the story.
Should I compare headline or effective rates?
Effective — total tax over total income. In a progressive state most of your income is taxed below the top rate, so headline rates overstate the difference.
Do cities levy income tax too?
Several do, on top of the state. It is easy to miss because it does not appear in a state-level comparison, and where it exists it is not trivial.
How much can this move a comparison?
Several per cent of take-home on a professional salary, which is enough to reverse a comparison between two offers that looked clearly separated on gross.
Which states have no income tax on wages?
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. New Hampshire taxes some investment income but not wages.
Should I use the headline tax rate?
No. Most states use brackets, so your effective rate — total tax over total income — is always lower, sometimes substantially.
What do people miss most often?
Local income taxes levied by cities and counties, which rarely appear in state comparisons and can outweigh the difference between two states.