Insurance Premium Tax by State: Rates, Credits, and Filing

Insurance premium tax rates by state run from a low of 0.5% in Illinois to a high of 4.265% in Hawaii, with most states landing between 1.5% and 2.5% of gross premiums and a flat 2% being the single most common figure.1National Association of Insurance Commissioners. Premium Tax Rate by Line Each state sets its own rate, structure, and exemptions under authority preserved by the McCarran-Ferguson Act, so the effective burden on an insurer depends heavily on where it writes coverage and what lines it sells.2National Association of Insurance Commissioners. McCarran-Ferguson Act

Premium Tax Rates in Every State

The figures below cover general lines of insurance. Life, health, annuity, and ocean marine premiums are often taxed differently within the same state, which is covered further down.

Below 1%

  • Illinois — 0.5% of net taxable written premiums (Illinois insurers also owe income and privilege taxes)
  • Wisconsin — 0.75%
  • Wyoming — 0.75%
  • Iowa — 0.95%

1% to 1.75%

  • Nebraska — 1%
  • New Hampshire — 1.25%
  • South Carolina — 1.25%
  • Indiana — 1.3%
  • Ohio — 1.4%
  • Connecticut — 1.5%
  • Idaho — 1.5%
  • Texas — 1.6%
  • Arizona — 1.7%
  • District of Columbia — 1.7%
  • Florida — 1.75%
  • North Dakota — 1.75%

2% to 2.5%

  • 2%: Colorado, Delaware, Kansas, Kentucky, Maine, Maryland, Minnesota, Missouri, New York, Pennsylvania, Rhode Island, Vermont, Washington
  • New Jersey — 2.1%
  • 2.25%: Georgia, Oklahoma, Utah, Virginia
  • Massachusetts — 2.28%
  • California — 2.35%
  • 2.5%: Arkansas, South Dakota, Tennessee

Above 2.5%

  • Alabama — 2.7%
  • Alaska — 2.7%
  • Montana — 2.75%
  • Mississippi — 3%
  • West Virginia — 3%
  • New Mexico — 3.003%
  • Nevada — 3.5%
  • Hawaii — 4.265%

States That Don’t Use a Flat Percentage

A few states tax insurers on a different basis entirely. Michigan applies the greater of the single business tax, income tax, or retaliatory tax. Oregon uses a corporate excise tax that varies with income.1National Association of Insurance Commissioners. Premium Tax Rate by Line

How Rates Change by Line of Insurance

Most states do not apply one rate to every kind of coverage. Life and health policies usually carry lower rates than property and casualty coverage, which reflects a policy choice to keep financial-protection and health products cheaper for consumers. New York, for example, taxes life premiums at 0.7% to 2% and non-life premiums at 1.75% to 2%.3New York State Department of Financial Services. Insurance Companies: Company Fees, Taxes, Charges and Deposits

Annuity Premiums

Roughly 30 states exclude annuity premiums from the tax base entirely, including Alabama, California, Connecticut, Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New York, North Carolina, North Dakota, Oklahoma, South Carolina, Utah, Vermont, Virginia, and Washington.4National Association of Insurance Commissioners. Premium Taxation of Annuities The exemptions treat annuities alongside other tax-favored retirement vehicles.

Ocean Marine and Fraternal Benefit Societies

Ocean marine insurance is generally treated as a separate category and often taxed at a reduced rate. California files ocean marine premiums on a different return from standard property and casualty lines, and at least one state applies less than half its standard rate to ocean marine coverage. Fraternal benefit societies commonly receive full or partial premium tax exemptions in addition to federal tax-exempt status.

Local Premium Taxes on Top of the State Rate

In some states the posted rate isn’t the whole picture. Kentucky is the clearest example: cities and counties impose their own local government premium tax on policies covering risks inside their boundaries, and the local rate varies from one municipality to the next.5Kentucky Department of Insurance. Local Government Premium Tax Insurers and brokers working in states with local add-ons need to allocate premiums by jurisdiction and remit the local tax separately.

Who Actually Pays the Tax

Licensed (admitted) insurers are the taxpayers of record. Every insurer with a certificate of authority in a state files returns and pays the tax on premiums for risks located there.6Texas Comptroller of Public Accounts. Insurance Premium Tax (Licensed Insurers) The economic cost, though, is generally built into the premium a policyholder pays.

Two situations shift the filing obligation off the insurer:

  • Surplus lines. When an admitted insurer won’t take a risk and coverage is placed with a non-admitted carrier, the surplus lines broker or agent typically files and pays. Risk retention groups are generally taxed on the same basis as foreign admitted insurers, with the rate set by the state where the risk sits.7Texas Comptroller of Public Accounts. Insurance Premium Tax (Surplus Lines/Purchasing Groups)8National Association of Insurance Commissioners. Premium Taxes: Risk Retention and Risk Purchasing Groups
  • Independently procured insurance. When a business buys coverage directly from a non-admitted insurer without going through a broker, nearly three-quarters of states impose an independently procured (or direct procurement) tax, generally at rates that mirror the surplus lines rate and range from about 1% to 6%. The policyholder files and pays. A handful of states have no such tax, and at least one state does not permit the practice at all, so a buyer purchasing coverage directly from an out-of-state unauthorized insurer should confirm the filing obligation before the policy incepts.

Retaliatory Taxes

The rate on the chart is not always the rate a foreign insurer pays. Every state runs a retaliatory calculation: if State A imposes heavier taxes or fees on out-of-state insurers than State B normally charges, State B raises its rate on the State A insurer to match. The mechanism is designed to pressure states away from discriminatory taxation of foreign insurers.

The Supreme Court upheld retaliatory taxation in Western & Southern Life Insurance Co. v. State Board of Equalization, finding it rationally related to a legitimate state interest.9Justia Law. Western and Southern Life Ins. Co. v. Board of Equalization, 451 U.S. 648 Four years later in Metropolitan Life Insurance Co. v. Ward, the Court struck down a straight domestic-preference tax that Alabama used to favor in-state companies, calling it “the very sort of parochial discrimination that the Equal Protection Clause was intended to prevent.”10Legal Information Institute. Metropolitan Life Insurance Company v. Ward, 470 U.S. 869 Retaliatory taxes that equalize burdens are constitutional; taxes that punish foreign insurers for being foreign are not.

Credits That Reduce the Effective Rate

Insurers in many states can offset part of their premium tax with credits for assessments they pay to state insurance guaranty associations, which cover claims when another insurer becomes insolvent. The most common structure allows a credit of 20% of the assessment per year for five consecutive years, starting the year after the assessment is paid. Alabama, Arizona, Colorado, Connecticut, Idaho, and Minnesota follow that pattern. The District of Columbia and Louisiana stretch it to 10% per year over ten years, and Florida to 5% per year over twenty years. A few states, including Idaho, do not allow unused credits to carry forward, so timing matters.11National Association of Insurance Commissioners. Premium Tax Credits for Guaranty Association Assessment

Filing Schedule and Payment

Most states require quarterly estimated payments rather than a single annual payment. Deadlines vary. Some states use the familiar April, June, September, and December quarterly dates; others use staggered schedules with up to five payment periods during the year. An annual reconciliation return is typically due in the first quarter of the following year, when the insurer settles the balance or takes an overpayment credit.

Twenty-nine states accept filings through the Online Premium Tax for Insurance (OPTins) platform run by the NAIC, which handles premium tax, surplus lines tax, and state-specific filings electronically.12National Association of Insurance Commissioners. Online Premium Tax for Insurance States outside OPTins run their own electronic or paper systems, so a multi-state insurer manages different portals, forms, and deadlines across jurisdictions.

Penalties for Late or Missing Payments

State penalty structures for late premium tax are usually percentage-based and stage upward the longer the delinquency runs. A smaller percentage applies to payments that are slightly late, a larger percentage kicks in once the delay stretches past 30 or 60 days, and interest accrues on top. Combined penalty and interest can reach 20% or more of the original tax if the balance sits unpaid long enough.

The bigger risk is regulatory. An insurer that fails to meet its premium tax obligations can have its certificate of authority suspended or revoked, which cuts off the ability to write new business or renew existing policies in that state.