Introduction
The United States levies tax on its citizens and residents on their worldwide income. Non-resident aliens are taxed on their US-source income. Also, income effectively connected with a US trade or business (with certain exceptions). Therefore, Personal income tax rates For individuals, the top income tax rate for 2021 is 37%, except for long-term capital gains. Also, qualified dividends (discussed below). P.L. 115-97 reduced both the individual tax rates and the number of tax brackets. P.L. 115-97 sunsets after 2025 many individual tax provisions. Including the lower rates and revised brackets, in order to comply with US Senate budget rules.[1]
Alternative minimum tax (AMT)
In lieu of the tax computed using the above rates, the individual AMT. Consequently, may imposed under a two-tier rate structure of 26% and 28%. For the tax year 2020, the 28% tax rate applies to taxpayers with taxable incomes above USD 197,900 (USD 98,950 for married individuals filing separately). For tax year 2021, the 28% tax rate applies to taxpayers. Also, with taxable incomes above USD 199,900 (USD 99,950 for married individuals filing separately).
Under P.L. 115-97, for tax years beginning after 31 December 2017, and before 1 January 2026, the AMT exemption amount increased to USD 109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return), and USD 70,300 for all other taxpayers (other than estates and trusts). The phase-out thresholds increase to USD 1 million for married taxpayers filing a joint return and USD 500,000 for all other taxpayers (other than estates and trusts).
These amounts indexed for inflation. For 2020, the AMT exemption amount is USD 113,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and USD 72,900 for all other taxpayers (other than estates and trusts), and the phase-out thresholds are USD 1,036,800 for married taxpayers filing a joint return and USD 518,400 for all other taxpayers (other than estates and trusts).
For 2021, the AMT exemption amount is USD 114,600 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and USD 73,600 for all other taxpayers (other than estates and trusts), and the phase-out thresholds are USD 1,047,200 for married taxpayers filing a joint return and USD 523,600 for all other taxpayers (other than estates and trusts).
State and local income taxes
Most states, and a number of municipal authorities, impose income taxes on individuals working or residing within their jurisdictions. Most of the 50 states impose some personal income tax, with the exception of Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, which have no state income tax. New Hampshire and Tennessee (until 1 January 2021) tax only dividend and interest income. Few states impose an income tax at rates that exceed 10%.[2]
9 States in U.S.A with no Taxes
The federal income tax deadline has been pushed back until May 17, but you may be off the hook for having to file a state tax return altogether, depending on where you live.
Nine U.S. states do not impose income tax on personal income. Living in a state with no income tax means that less money comes out of your paycheck each month, and come tax season you only have to submit a federal return.
As for the rest of the country, thirty-two states (plus D.C.) charge a progressive income tax where higher earners pay a greater percentage of their income than lower earners do, and another nine states charge a flat income tax where everyone is taxed at the same rate regardless of their income level.
In the nine states with no income tax (listed below), all residents avoid paying tax on their earnings. We include New Hampshire in this list as it has no tax on earned wages, but note that it does charge a flat income tax on investment earnings.
Currently, the states with no individual income tax include:
- Alaska
- Florida
- Nevada
- New Hampshire (doesn’t tax earned wages, but does tax investment earnings)
- South Dakota
- Tennessee (as of this year, will no longer tax investment earnings)
- Texas
- Washington
- Wyoming
An analysis of 2020 moving data by United Van Lines found that the Covid-19 pandemic accelerated decisions to move from high-tax states like New Jersey, New York and California to no-income-tax states like South Dakota, Tennessee and Florida (which ranked in the top 10 states with the most people moving in).[3]
[1] https://taxsummaries.pwc.com/united-states/individual/taxes-on-personal-income
[2] https://www.investopedia.com/financial-edge/0411/5-groups-that-dont-pay-taxes.aspx
[3] https://www.investopedia.com/taxes/sources-nontaxable-income/
