For those planning to start a company or do business in the US, it is important to understand the tax rates in the US, the current tax rates of the states and the tax processes involved. The tax system in the US is complex and varies at both the federal and state levels. While taxes such as income tax and corporate taxes apply at the federal level, states have their own tax rates and rules. Therefore, understanding the tax structure of the state where you plan to do business is critical to properly managing your costs and your business' tax obligations.
Current Tax Rates by State
- California: California has the highest state income tax rates in the United States. Income tax rates for individuals start at 1% and go up to 13.3%. The income tax rate for corporations is 8.84%.
- New York: New York state is known for its high income tax rates. State income tax rates for individuals range from 4% to 10.9%, with an additional local income tax levied in New York City. The corporate tax rate for companies is 6.5%.
- Texas and Florida: These states are among the states that do not impose individual income tax. However, Texas imposes a 1% franchise tax on businesses once they reach a certain income level. In Florida, the corporate income tax is 5.5%.
- Delaware A popular state for company formations, Delaware has a corporate tax rate of 8.7%. However, Delaware's non-taxation of non-trade income and flexible business structure laws make it an attractive destination for companies.
- Nevada and Wyoming: These states are also among the states that do not impose income tax for individuals. There is also no corporate income tax for companies, which makes Nevada and Wyoming attractive for businesses.
Taxation Processes in the US
Taxation in the United States is done at two main levels: federal and state. At the federal level, all companies and individuals are subject to a progressive income tax based on their annual income. The federal corporate tax rate is a flat 21% since 2018. In addition, employers and employees deduct deductions from wages for Social Security and Medicare. At the state level, each state has its own tax laws and rates. Some states do not impose income tax (e.g. Florida, Texas and Nevada), while others have very high income tax rates (e.g. California and New York).
Things to Consider in Tax Processes
In America, it is important for business owners to ensure full compliance with tax processes to avoid penalties and fulfill their legal obligations. Companies need to file their tax returns, both federal and state, on time and accurately. The tax season usually ends in April of each year, but returns can be filed on different dates depending on the business situation.
As the tax processes in the US are complex and dynamic, it is important to get the right tax planning and accounting advice. Knowing and complying with the different tax rules of each state plays a vital role, especially for companies operating in more than one state. Therefore, getting professional help from an accountant or tax advisor to develop a tax strategy that suits the needs of your business will help you manage your financial obligations in the best way possible.
Tax Rates in the United States - State by State
| State | Individual Income Tax Rate | Corporate Tax Rate |
|---|---|---|
| Alabama | %2 - %5 | %6.5 |
| Alaska | No | %0 |
| Arizona | %2.59 - %4.5 | %4.9 |
| Arkansas | %2 - %5.9 | %5.3 |
| California | %1 - %13.3 | %8.84 |
| Colorado | %4.55 | %4.55 |
| Connecticut | %3 - %6.99 | %7.5 |
| Delaware | %2.2 - %6.6 | %8.7 |
| Florida | No | %5.5 |
| Georgia | %1 - %5.75 | %5.75 |
| Hawaii | %1.4 - %11 | %4.4 |
| Idaho | %1 - %6.5 | %6 |
| Illinois | %4.95 | %9.5 |
| Indiana | %3.23 | %4.9 |
| Iowa | %0.33 - %8.53 | %5.5 |
| Kansas | %3.1 - %5.7 | %4 |
| Kentucky | %5 | %5 |
| Louisiana | %2 - %6 | %7.5 |
| Maine | %5.8 - %7.15 | %8.93 |
| Maryland | %2 - %5.75 | %8.25 |
| Massachusetts | %5 | %8 |
| Michigan | %4.25 | %6 |
| Minnesota | %5.35 - %9.85 | %9.8 |
| Mississippi | %3 - %5 | %5 |
| Missouri | %0 - %5.4 | %4 |
| Montana | %1 - %6.9 | %6.75 |
| Nebraska | %2.46 - %6.84 | %5.58 |
| Nevada | No | No |
| New Hampshire | 5% (interest and dividend income) | %7.6 |
| New Jersey | %1.4 - %10.75 | %9 |
| New Mexico | %1.7 - %5.9 | %5.9 |
| New York | %4 - %10.9 | %6.5 |
| North Carolina | %4.75 | %2.5 |
| North Dakota | %1.1 - %2.9 | %4.31 |
| Ohio | %0 - %3.99 | Business Activity Tax (0.26%) |
| Oklahoma | %0.5 - %5 | %4 |
| Oregon | %4.75 - %9.9 | %6.6 - %7.6 |
| Pennsylvania | %3.07 | %9.99 |
| Rhode Island | %3.75 - %5.99 | %7 |
| South Carolina | %0 - %7 | %5 |
| South Dakota | No | No |
| Tennessee | No | %6.5 |
| Texas | No | Franchise Tax (0.375% - 0.75%) |
| Utah | %4.85 | %4.85 |
| Vermont | %3.35 - %8.75 | %8.5 |
| Virginia | %2 - %5.75 | %6 |
| Washington | No | Commercial and Professional Activity Tax (0.13% - 3.3%) |
| West Virginia | %3 - %6.5 | %6.5 |
| Wisconsin | %3.54 - %7.65 | %7.9 |
| Wyoming | No | No |
Notes
- Individual Income Tax: In some states, individual income tax rates are progressive based on income.
- Corporate Income Tax: Most states levy corporate income tax on companies on a state-by-state basis. Some states may impose other taxes instead of corporate income tax (e.g. Washington and Texas).
- Tax Exemption: States like Nevada, Wyoming, and South Dakota do not charge individual income and corporate taxes, making them attractive to businesses.
This table summarizes the current tax rates of the states; however, taxes may change over time. It is important to check with the relevant state's tax office or a tax professionalfor up-to-date information.
