What’s the Difference State Taxes and Federal Taxes

A common challenge taxpayers face is their inability to distinguish between State and federal taxes. Unless you are living in a state that doesn’t have an income tax, you are required by law to pay tax returns. Below are some of the things that differentiate State Taxes from Federal Taxes

What Counts as Income

In most cases, Federal Income Taxes are more detailed. For instance, states impose taxes on items like wages and salaries, investment income, and profit from self-employed, the same way Federal taxes are imposed. However, while federal income taxes are also imposed on pension and other social security income, most State taxes exempt pension and social security related income from their taxable items. In a nutshell, there’s always a huge gap between what the Federal and State government described as taxable income and the deduction from such income.

Who Collects the Taxes

The federal government of every country collects federal taxes to pay bills, provide health facilities, social security, education, etc. State taxes, on the other hand, are collected by the State government to develop their territories.

Who the Taxes Are Imposed Upon

Federal taxes are imposed on citizens, resident aliens, and non-resident aliens of a country, irrespective of the state they are residing. However, state taxes vary depending on the taxpayer’s state of residence. But they are imposed on properties and taxable income of residents. It’s also imposed on the income earned within the State by non-residents.

Not All States Has an Income Tax

While Federal taxes are imposed on every resident of the country, some states don’t impose income taxes. For instance, in the United States, 7 States (Florida, Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming) don’t impose personal income taxes. Also, States like New Hampshire and Tennessee don’t charge wage taxes. Contact us for more information today.

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