GET TAX HELP (800) 536-0734

2023 State Income Tax Rates and Brackets

2023 state income tax rates and brackets

We often discuss federal taxes here, from tax filings to deductions and credits. However, it’s important to note that federal taxes are typically only one half of a taxpayer’s responsibility. In addition to filing and paying federal taxes each year, taxpayers must also stay on top of their state tax responsibilities if they have any. Here we will discuss the different types of state tax systems, as well as the 2023 state income tax rates and brackets.  

State Tax Systems 

Not every state taxes their residents the same. In fact, some states don’t tax at all. These states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire does not tax regular income, but it does have a 5% tax on dividend and interest income. All other states either use a flat tax system or a progressive tax structure.  

Flat Tax System 

The flat tax system is the simpler of the two and involves one tax rate for most types of income. The factor that could change state to state is which income is considered taxable. Some states alternatively tax according to AGI instead of taxable income. States that have a flat tax rate in 2023 are: 

  • Arizona – 2.5% of taxable income 
  • Colorado – 4.4% of taxable income 
  • Idaho – 5.8% of taxable income 
  • Illinois – 4.95% of taxable income 
  • Indiana – 3.15% of taxable income 
  • Kentucky – 4.5% of taxable income 
  • Michigan – 4.05% of taxable income 
  • New Hampshire – 4% on dividends and interest income only 
  • Pennsylvania – 3.07% of taxable income 
  • Utah – 4.65% of taxable income 

Progressive Tax Structure 

The remaining states use a progressive tax system, in which higher incomes are taxed at higher rates. In 2023, states that use a progressive tax system are:  

State Tax Rates Number of Brackets 
Alabama 2%-5% 3 
Arkansas 2%-4.9% 3 
California 1%-12.3% 9 
Connecticut 3%-6.99% 7 
Delaware 0%-6.6% 7 
District of Columbia 4%-10.75% 7 
Georgia 1%-5.75% 6 
Hawaii 1.4%-11% 12 
Iowa 4.4%-6% 4 
Kansas 3.1%-5.7% 3 
Louisiana 1.85%-4.25% 3 
Maine 5.8%-7.15% 3 
Maryland 2%-5.75% 8 
Massachusetts 5%-9% 2 
Minnesota 5.35%-9.85% 4 
Mississippi 0%-5% 2 
Missouri 1.5%-4.95% 8 
Montana 1%-6.75% 7 
Nebraska 2.46%-6.64% 4 
New Jersey 1.4%-10.75% 7 
New Mexico 1.7%-5.9% 5 
New York 4%-10.9% 9 
North Dakota 1.1%-2.9% 5 
Ohio 0%-3.99% 5 
Oklahoma 0.25%-4.75% 6 
Oregon 4.75%-9.9% 4 
Rhode Island 3.75%-5.99% 3 
South Carolina 0%-6.4% 3 
Vermont 3.35%-8.75% 4 
Virginia 2%-5.75% 4 
West Virginia 3%-6.5% 5 
Wisconsin 3.54%-7.65% 4 

Conclusion 

Taxpayers should ensure that they stay on top of their state tax obligations as well as their federal. We often hear horror stories about what happens if the IRS begins to take collection action against you, but state tax agencies can be just as intimidating. Like the IRS, your state’s department of revenue can levy and penalize you. In addition, they can revoke or refuse to renew any state-issued licenses, including driver’s licenses and professional licenses you may need to operate a business. If you’re behind on your state taxes, Optima Tax Relief can help.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

Tax Tips for Seniors and Retirees

tax tips for seniors and retirees

As the golden years approach, seniors and retirees face a new set of financial challenges, with tax planning becoming increasingly important. Understanding the tax implications of retirement income sources, investments, and deductions can significantly impact a retiree’s financial well-being. In this blog post, we’ll explore some valuable tax tips specifically designed for seniors and retirees, helping them navigate the complex tax landscape and make the most of their hard-earned money. 

Know Your Retirement Income Sources 

Before diving into tax planning, it’s crucial for seniors and retirees to identify their sources of income during retirement. Common income streams may include Social Security benefits, pensions, 401(k) or IRA distributions, annuities, investment income, and part-time employment. Knowing where your money comes from will enable you to plan effectively for tax obligations. 

Understand How Tax Filing Changes 

Did you know that after turning 65, you and/or your spouse can get a higher standard deduction. The 2023 standard deduction for those 65 and older is $1,850 more if you file single or head of household and an additional $1,500 per qualifying individual if you are married or a surviving spouse. These increases also apply to blind taxpayers. Taxpayers who are both 65 or older and blind will receive double the extra amount. In addition, being 65 years or older allows a taxpayer to use Form 1040-SR. While Form 1040-SR uses the same set of instructions and schedules as Form 1040, it is printed with larger text, potentially making it more accessible for seniors and retirees. It also includes the additional amount in the standard deduction. 

Understand Social Security Taxation 

For many retirees, Social Security benefits serve as a vital income source. However, depending on your total income, a portion of your Social Security benefits may be taxable. According to the IRS, only up to 85% of your Social Security benefits may be taxed. To determine your taxable Social Security benefits, calculate your combined income, which includes your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits. Refer to the IRS guidelines or consult a tax professional for assistance in understanding your specific tax obligations related to Social Security benefits. 

Embrace Tax-Advantaged Retirement Accounts 

For retirees who have yet to withdraw funds from their retirement accounts, such as Traditional IRAs or 401(k)s, they can benefit from tax-deferred growth. However, after turning 72 (due to recent legislation changes), retirees must start taking required minimum distributions (RMDs) from these accounts, which are subject to income tax. Additionally, consider Roth IRA conversions strategically to minimize future tax burdens and leave a tax-free legacy for heirs. 

Leverage Health Savings Accounts (HSAs) 

If you have a high-deductible health insurance plan, consider contributing to a Health Savings Account (HSA). HSAs offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. Seniors can utilize their HSA funds to cover eligible medical costs in retirement, providing substantial tax savings. 

Take Advantage of Catch-Up Contributions 

For seniors who aim to boost their retirement savings before they retire, catch-up contributions are a valuable tool. Individuals aged 50 and above can contribute additional funds to their IRAs and workplace retirement accounts, allowing them to save more while reducing their taxable income. In 2023, you may contribute an additional $7,500 to a 401(k), 403(b), most 457 plans, and a government Thrift Savings Plan. Those who participate in SIMPLE plans can contribute $3,500 in catch-up contributions.  

Deduct Medical Expenses 

Medical expenses can quickly add up for seniors, making them potential tax deductions. If your total medical expenses exceed a certain percentage of your adjusted gross income, you may qualify for a deduction. Keep records of all qualifying medical costs, including doctor visits, prescription medications, long-term care expenses, and insurance premiums, to take advantage of these deductions. 

Tax Help for Seniors and Retirees 

As seniors and retirees embark on their new journey of financial freedom, understanding the intricacies of tax planning becomes paramount. By following these tax tips and consulting with a qualified tax professional, retirees can make informed decisions, optimize their savings, and minimize tax-related stress. Optima Tax Relief is the nation’s leading tax resolution firm. 

If You Need Tax Help, Contact Us Today for a Free Consultation