How Do Federal Tax Rates and Withholding Tables Apply to Different States?


Quick Answer

Federal tax rates and withholding tables generally do not change from state to state, so taxpayers remain in the same federal tax bracket regardless of their state of residence. However, deductions of state income and sales taxes do alter the effective taxable income for some taxpayers between states.

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Full Answer

The Internal Revenue Service defines four types of deductible taxes for individual filers, including state and local income taxes and state and local general sales taxes. Since not all states have income or sales taxes and not all states tax at the same rate, the amount of the deduction for a particular taxpayer varies from state to state. It is therefore possible for a taxpayer in a state with a low income tax rate to have a higher effective federal tax rate than one in a state with a higher income tax rate, as the first taxpayer's taxable income for federal purposes is higher.

State and local tax deductions are most likely to affect the federal tax rates of taxpayers with high incomes who are able to itemize their deductions. This is due to the classification of these deductions as itemized deductions, rather than an above-the-line deduction such as student loan interest. Taxpayers that use the standard deduction therefore cannot claim state and local tax deductions.

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