Several Questions About State Income Taxes

How many states have a state income tax?

Has introducing a state income tax been good or bad for those states?

http://taxfoundation.org/article/2013-state-business-tax-climate-index has a list of various tax characteristics of states. You really need to consider the total tax burden (not just income tax) to judge the economic impact. The states with high taxation have high costs of living, which means you can afford to buy less with the same amount of work. Most people think that’s bad since they like to be able to do things with their own money.

The result? People leave big-government states andmove to small-government states, in order to be more free and have more disposable income. See http://www.governing.com/gov-data/census/2010-census-state-migration-statistics.htmlwhich shows where people are moving, and you can line it up with the tax rankings on the first URL.

 

Using Federal Income for State Income Tax

Do all states determine use your gross income for determining taxes or do some use your take-home pay after federal taxes?

All states use your gross income. Seven states do not tax personal income: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Two more states tax only interest and dividend income: New Hampshire and Tennessee

 

Why does the standard deduction exist? And what are the benefits? Is the standard deduction the only choice other than itemizing deductions?

The main reason for standard deduction is to avoid keeping records of your purchases. Additional benefits include less complicated paperwork, and less knowledge necessary to fill it (or less money to pay somebody else to do it). The drawback is that when you make large purchases you will likely get higher deduction doing the itemizing. To answer your final question, no, as far as I am aware you can only choose between itemizing or not. Although other countries do have other means of reducing tax burdens than deductions.

 

What is the difference between federal and state tax?

To be more precise: Where have you to pay this tax, and where that?

The difference is not only in the percentages but in that federal tax goes to the federal government which they can use in any way for the common good of the country: military, paying off debt, federal employee salaries, etc. and the state tax goes to your state’s government to provide things for the common good of the people specifically in your state such as building roads, paying state employee salaries, etc.

 

Does the state tax take from you salary before or after the federal tax takes from you?

The simple answer is that a state computes its taxes as a percentage of a person’s income the same way as federal taxes are computed. There are lots of special cases that can vastly complicate this simple answer, such as the ability of some people to deduct what they pay in state income taxes from their income when computing their federal tax.