Do you need to file a state income tax return for 2023? Maybe. Here's how it works
Federal taxes and the IRS are enough to worry about -- but most Americans must also remember to pay state taxes.
There are exceptions. Taxpayers who live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming don’t need to worry -- because those states don’t levy a personal income tax. Everyone else does.
Despite that, there is a bit of relief. A dozen states cut their income tax rates for 2023, meaning you get to keep more of your money. Only a couple raised income tax rates.
Which states cut their income tax rate for 2023?
- Arizona: went to a flat 2.5% from a two-bracket structure with rates of 2.55% and 2.98%
- Idaho: dropped to a flat 5.8% from the top marginal rate of 6%
- Indiana: flat rate trimmed to 3.15% from 3.23%
- Iowa: nine individual income tax rates consolidated into four, and the top rate will decrease to 6% from 8.53%.
- Kentucky: dropped to 4.5% from 5%
- Michigan: dropped to 4.05% from 4.25%
- Missouri: top marginal rate cut to 4.95% from 5.3%, and the amount of income that's exempt from individual income tax rates will increase to $1,000 from $100
- Nebraska: top marginal rate decreased to 6.64% from 6.84%
- New York: rate on income between $13,901 and $80,650 (single filers) and between $27,901 and $161,550 (joint filers) fell to 5.5% from 5.85%; rate on income between $80,651 and $215,400 (single filers) and between $161,500 and $323,200 (joint filers) dropped to 6% percent from 6.25%
- North Carolina: flat tax declined to 4.75% from 4.99%
- Utah: flat rate dropped to 4.65% from 4.85%
- West Virginia: top marginal rate fell to 5.12% from 6.5%
Which states raised income taxes for 2023?
- Massachusetts: has a flat 5% income tax rate but instituted for 2023 a “millionaire’s tax” so that any income above $1 million is subject to a 4% surtax
- 12 Mississippi: a 5% flat tax starting at $10,001 replaced a graduated tax rate of 0%, 4%, and 5%
Who needs to file a state tax return?
If a state has an income tax, there are two scenarios in which you must file a return:
- You’re a resident of the state
- You’re not a resident of the state, but you earn income in that state. Examples of this include rental income from a second home or a professional athlete or consultant who may work in different states. Every state in which you earn income will require you to file a tax return and pay taxes on the income earned there. You’ll also have to report that income in your home state return, but your home state usually allows you to take a credit for taxes paid to another state on the same income.
Who pays the most and least?Taxes 2020: These are the states with the highest and lowest taxes
Do states perform tax audits?
Yes.
“States are similar to the IRS and have mechanisms to audit taxpayers,” Rios said.
Since states have different rules, it’s important to know what they are in the state you’re filing in. Misreporting data, math mistakes, incomplete state tax forms, excessive deductions, and failing to file your state tax return at all or on time are common audit triggers, experts say.
A state audit works similarly to an IRS audit. Usually, states will contact you by mail notifying you of an audit and ask you for more information with instructions on how to proceed.
Does a state audit automatically mean an IRS audit?
Not necessarily, but it’s possible because your state’s tax department likely communicates with the IRS and some of the information on both returns is the same.
When are state taxes due?
Most states generally follow federal guidelines, which would be April 15. However, you should double check with the state because they can differ for various reasons such as disasters.
If your state doesn’t have an income tax, there is no deadline.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.