State Tax Vs. Federal Tax

by Jessica Kent ; Updated September 11, 2015

Income taxes are imposed on individuals, with a few exceptions, at both the state and federal level. The states of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not have state income tax, but residents of these states are required to file federal tax returns.

Federal Income Tax

It is useful to prepare an individual's federal income tax return prior to an individual's state income tax return. Federal income tax is often the starting income point of state taxable income.

Tax Rates

State income tax rates are regulated by each state. Federal income tax rates are the same for all across the nation.

Education Credits

The federal government allows individuals both a deduction and credit for secondary education expenses. Each state offers different options for education credits, such as deductions for contributions to 529 plans.

Deduction for State Income Tax

Individuals are able to deduct the amount of state income taxes paid on their federal tax return as an itemized deduction. The amount to deduct includes state income tax withholdings, estimated state tax payments and payments made with the prior year state tax return.

Retirement Benefits

States allow adjustments to taxable income for retirement benefits paid to individuals from state agencies. For example, civil service pensions and teacher retirements are generally not taxed by the state that pays them. Retirement benefits will be taxed by the federal government.

About the Author

Jessica Kent started writing professionally in 2002. Her articles have appeared in publications including the New York State Bar Association's "Family Law Review," "Valuation Strategies" and "Metropolitan Corporate Counsel." Through her writing, she strives to assist people in making informed financial decisions. She is a Certified Public Accountant in New York. Kent holds a Bachelor of Science in accounting from Binghamton University.

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