This section will guide you through the differences between state and federal tax laws, and how tax laws can differ between states.
By Lyle Therese A. Hilotin-Lee, J.D. | Legally reviewed by Laura Temme, Esq. | Last reviewed March 20, 2025
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Learning about federal and state tax laws is essential to filing taxes. Although federal taxes follow a uniform set of rules nationwide, the tax system varies significantly across states.
This section provides an overview of state tax systems, including filing requirements, tax exemptions and deductions, state tax codes, and variations in state tax law.
State tax laws differ from one jurisdiction to another. At present, 41 states and the District of Columbia impose state income taxes on wages. Meanwhile, eight states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—have no income tax. New Hampshire, on the other hand, only taxes dividends and interest income.
Other than income taxes, states also rely on various sources of revenue. For instance, 45 states collect sales tax. All states impose property taxes, although the rates vary widely. For instance, New Jersey and Illinois' property tax rates exceed 2%, whereas Hawaii's property tax is 0.28%.
The unique economic conditions of each state government cause these varying tax laws. The tax administration in each state is often handled by the Department of Revenue or a similar agency, which enforces and creates state tax regulations.
States may also levy excise taxes on certain goods and services, such as alcohol, tobacco, or gasoline. Many municipal governments also impose local taxes. This creates multiple layers of taxation that residents must navigate.
Your obligation to file state tax depends mainly on your residency status and your sources of earned income. State tax laws often recognize various categories for taxpayers. Each category contains a different tax filing requirement.
In general, full-year residents of the United States should report all their gross income, regardless of where they earned that income. To avoid double taxation on the same income, most states provide tax credits for taxes paid to other states.
Full-year residents often file the standard individual income tax return by filling out Form 40, Form 1, IT-201, or a similar form, depending on the state.
Individuals who live in the state only for a portion of the tax year, pay different taxes compared to full-year residents. These taxpayers should file tax returns by reporting the income they earned while living in the state.
Most states also offer part-year resident forms or tax schedules that allocate the income between different states depending on the period of residency.
Individuals who do not meet the definition of “residents" based on factors such as domicile and physical presence might still have tax obligations to a given state. In most cases, if nonresidents earn income from sources within a state, they generally should file nonresident tax returns in that state.
It is important to note that the threshold for nonresidents varies significantly across the nation. Nearly half of the states require nonresidents to file a tax return even if they work only a single day in that state.
If you earn income in another state, you might have to file your taxes there even if you're not a resident.
In the following states, nonresidents should file their income tax return if they earn any income within that state, regardless of the amount:
Other states require tax filings from nonresidents only if they reach certain time or income-based thresholds.
Some states require nonresidents to file their income tax returns only if they work a certain number of days in that state.
For instance, Montana and Indiana have a 30-day threshold. This allows nonresident taxpayers to work within the state for less than 30 days without triggering their tax obligations.
Louisiana, North Dakota, Utah, and West Virginia have state laws that provide more limited day-based exclusions.
Other states have established a minimum income threshold before a nonresident should file an income tax return. For example, Maine requires nonresident taxpayers to file if they worked 12 or more days in the state and earned more than $3,000.
The following states also have income-based thresholds for nonresident tax filings:
If you have questions about whether you need to file your taxes in another state, consult that state's tax agency or a local tax professional.
States offer various tax breaks that can reduce your overall tax burden. They often come in the form of exemptions or tax deductions. Tax deductions subtract money from your total gross income so that you have a lower amount to pay taxes on.
A standard tax deduction is a specified dollar amount that reduces how much of your income is subject to taxes.
The Internal Revenue Service (IRS) adjusts the standard federal deduction each tax year. How much you can claim depends on your age and filing status.
For example, let's say you're a 30-year-old single filer who earned $60,000 in 2024. The federal standard deduction for 2024 is $14,600. If you take the standard deduction, that means only $45,400 of your income is taxable.
People older than 65 can take advantage of a higher federal standard deduction.
Many states adopt the standard deduction set by the IRS, while others establish their own. Pennsylvania, for example, does not have a standard deduction for personal income tax. But taxpayers can use other credits and exclusions to reduce their taxes owed.
Taxpayers can also opt to itemize their deductions instead. Itemized deductions allow people to claim certain expenses as a deduction, such as mortgage interest or donations to charity.
People generally choose to itemize only if the total allowable itemized deduction is greater than the standard deduction. Or if they do not qualify for the standard deduction.
If you choose to itemize your federal taxes, you can often claim a deduction for state and local taxes. However, if you itemize your state taxes, most states will not allow a deduction for state income tax.
Tax exemptions also reduce your tax burden, but in a different way than deductions. Rather than reducing your overall taxable income, a tax exemption removes certain income sources from your tax liability, such as:
The IRS no longer uses personal and dependent exemptions for federal taxes. Instead, it offers the standard deduction discussed above.
State tax exemptions vary. Some states and counties offer tax exemptions to businesses to help stimulate the local economy. They might encourage business owners to operate in certain areas by making them exempt from property taxes. Or they might exempt certain types of businesses from paying sales tax.
Understanding your tax obligation is crucial for filing proper tax information. If you encounter difficulties with state tax forms or payments, start by contacting your state tax agency or a local tax professional.
You can also seek legal advice from a tax attorney who can help you better understand your local tax code. They can also assist you in resolving issues like tax liens and wage garnishment. Contact a state tax law attorney today to learn more.
