Whether you have to pay state taxes depends on three things: the state you live in, the state or states where you earn your income, and how much you make. Eight states collect no personal income tax at all. Most of the rest exempt people who earn below a set threshold. Everyone else files at least one state return, and sometimes two.
States That Collect No Personal Income Tax
Eight states impose no general personal income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states and earn all your income there, you won’t file a state income tax return on wages, salary, or self-employment earnings. These states fund themselves through sales taxes, property taxes, or taxes on natural resources and specific industries.
New Hampshire joined the group in 2025. The state used to tax interest and dividend income, but that tax was fully repealed for tax periods beginning after December 31, 2024. New Hampshire residents no longer owe state tax on any form of personal income.
Washington carries one exception worth flagging. It doesn’t tax wages or ordinary income, but it does tax profits from selling stocks, bonds, and other financial assets. For tax year 2025 onward, the rate is 7% on the first $1 million in long-term capital gains and 9.9% above that threshold. If you live in Washington and sell investments at a profit, you may still owe state tax.
Income Below the Filing Threshold
Even in states that do tax income, not everyone owes money or has to file. Most states set a minimum income level that triggers the filing requirement, and those thresholds often mirror the federal standard deduction. For the 2026 tax year, the federal standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill If your gross income falls below your state’s filing threshold, you generally have no obligation to file a state return.
These thresholds move upward each year for inflation, so it’s worth checking the current numbers. Filing status is the biggest single factor: a married couple filing jointly has roughly double the threshold of a single filer. If you earn below the cutoff but your employer withheld state tax from your paychecks, you may still want to file voluntarily. Filing a return is the only way to get that withheld money back as a refund.
Which State Counts You as a Resident
States use two tests to decide whether you’re a resident for tax purposes. You can pass one and still get caught by the other.
The first is the domicile test. Your domicile is the state you treat as your permanent home. It stays the same until you deliberately abandon it and set up a new one somewhere else. States look at where your primary home is, where your family lives, where you’re registered to vote, where you hold a driver’s license, and similar ties. Spending time elsewhere doesn’t change your domicile if you haven’t cut those connections.
The second is the statutory residency test. Even if you’re domiciled elsewhere, spending more than 183 days in a state during the tax year while keeping a place to live there can make you a statutory resident. Any part of a day generally counts as a full day. This catches people who split time between two states without technically moving. You can be domiciled in a low-tax state and still owe full-year taxes to a high-tax state if you trip the 183-day wire while keeping a home there.
If you moved during the year, you’ll usually file part-year resident returns in both states, reporting the income you earned while living in each. Every state has its own part-year form. The math gets tedious when income doesn’t arrive in neat monthly installments, particularly for self-employed people and those with investment income.
Earning Income in a State Where You Don’t Live
If you earn money in a state where you don’t live, that state generally expects you to file a nonresident return and pay tax on the income sourced there. This applies to cross-border commuters, freelancers working for out-of-state clients, landlords collecting rent on property in another state, and traveling professionals like athletes or consultants who work at multiple sites.
Reciprocity Agreements
Some neighboring states have reciprocity agreements that let commuters pay income tax only to their home state, regardless of where the office sits. If your state of residence and your state of employment participate, you can submit an exemption form to your employer so they withhold for the right state. These arrangements are common in the mid-Atlantic and Midwest but don’t cover every pairing, so check your specific combination.
Credits for Taxes Paid to Another State
When no reciprocity agreement applies, you’ll likely owe tax to both your home state and the state where you earned the income. Almost every state with an income tax offers a credit for taxes paid to another state. You pay the nonresident state first, then claim a credit on your home state return for the amount already paid. That usually prevents true double taxation, though you end up effectively paying whichever state’s rate is higher.
Remote Work and the Convenience Rule
A handful of states apply the “convenience of the employer” rule, which taxes your wages based on where your employer’s office is located rather than where you physically work. New York, Delaware, Connecticut, Nebraska, Pennsylvania, and Oregon have adopted some version of this rule, though the details vary.2National Conference of State Legislatures. State and Local Tax Considerations of Remote Work Arrangements Connecticut applies its version only to residents of other convenience-rule states, and Oregon limits it to nonresident executives performing managerial duties.
The practical effect: if you work remotely from home in New Jersey for a New York-based employer, New York may still tax your wages as if you earned them in Manhattan. You’d then claim a credit on your New Jersey return for the taxes paid to New York. If your home state’s rate is lower, you lose the rate advantage you thought you had by not commuting.
Income Many States Don’t Tax
Some kinds of income get favorable treatment even in states with relatively high rates.
Social Security Benefits
The federal government taxes up to 85% of Social Security benefits for recipients whose combined income exceeds certain thresholds.3Internal Revenue Service. IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable Most states don’t touch Social Security at all. Only about eight states tax it to any degree, and several of those offer generous exemptions based on age or income. Colorado fully exempts benefits for taxpayers 65 and older. Connecticut exempts them entirely for single filers with adjusted gross income under $75,000 and joint filers under $100,000.
Military Pay
Active-duty service members are protected by the Servicemembers Civil Relief Act, which prevents states from taxing military compensation unless the service member is domiciled there. If you’re stationed in a state that isn’t your legal home, that state cannot tax your military wages. Only your state of domicile can. This is a federal rule that overrides state tax codes, so you don’t need to look for a state-level exemption.
Retirement Distributions From a Former State
Federal law prohibits states from taxing the retirement income of people who no longer live there. Under 4 U.S.C. ยง 114, if you earned a pension or built up a 401(k) while working in one state but retire to another, your former state can’t tax those distributions.4Office of the Law Revision Counsel. 4 US Code 114 – Limitation on State Income Taxation of Certain Pension Income The protection covers 401(k) and 403(b) plans, traditional IRAs, government pensions, and similar accounts. Your new state of residence may still tax the income under its own rules, and roughly a dozen states (including Illinois, Iowa, Mississippi, and Pennsylvania) exempt most or all retirement distributions from their own residents’ tax bills as well.
Municipal Bond Interest
Interest on municipal bonds issued by your home state or its local governments is typically exempt from that state’s income tax, on top of the federal tax exemption most municipal bond interest already receives. Bonds issued by a different state will usually still be subject to your home state’s tax. The 1099-INT forms your brokerage sends each year identify which bonds generated the interest.
What Happens If You Skip a Return You Owed
Ignoring a state filing obligation doesn’t make it go away. States share information with the IRS and with each other. If your federal return shows income sourced to a state where you didn’t file, that state’s revenue department will eventually notice.
The usual consequence is a penalty based on a percentage of the unpaid tax, compounding monthly until the bill is paid. A 5% monthly penalty capped at 25% of the tax owed is a common structure, though exact rates differ by state. Interest accrues on top of that from the original due date. Beyond the financial hit, some states can place liens on property, garnish wages, or suspend professional licenses for chronic noncompliance.
If you realize you should have filed in a state for a prior year, filing a late return voluntarily almost always results in lower penalties than waiting for the state to catch up with you. Many states reduce or waive penalties for taxpayers who come forward on their own before an audit begins.