The United States has a progressive federal tax system, which applies higher tax rates as your amount of income increases. The majority of states follow the federal example and employ their own version of a progressive income tax system. There are, however, some exceptions since each state does set up its own tax rules.
Progressive Tax States
Thirty four of the 50 states have progressive income tax systems, as does the District of Columbia. The rates are set at much lower percentages than the 15 to 35 percent federal income tax brackets in effect at the time of publication. States with low income tax rates, such as North Dakota and New Mexico, have rates between 1 and 6 percent. The high income tax states like California, Hawaii and New York have top brackets in the 9 to 11 percent range.
No Income Tax States
Some states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- don't collect any income taxes. That essentially means they use the opposite of a progressive tax system. New Hampshire and Tennessee don't have income taxes on earned income. They do apply a flat income tax rate to interest and dividend income.
Flat Tax States
The only time you'll hear the word flat associated with Colorado is when it comes to taxes. The home of the Rocky Mountains uses a flat tax system where everyone pays the same regardless of income. Illinois, Indiana, Massachusetts, Michigan, Pennsylvania and Utah are the only other states with similar plans. As of 2012, the rates ranged from 3.07 percent in Pennsylvania to 5.3 percent in Massachusetts.
Even states with flat income tax rates have progressive features. If you make a certain amount of money, you can pay deductions and exemptions before you pay any income taxes. As a result, you can end up in a 0 percent bracket for the lowest levels of income, and the flat tax rate bracket if your income exceeds the level of deductions or exemptions.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.