State vs Federal Tax — How They Work Together
Federal and state income taxes are two entirely separate tax systems that happen to use similar mechanics. You file separate returns, pay to different entities, and the rules don't always match. But they interact in important ways — your federal deductions can affect your state tax, and your state tax affects your federal deductions. Understanding how they work together helps you plan more effectively.
Calculate your state tax specifically with the State Income Tax Calculator.
Key Differences
| Feature | Federal Tax | State Tax |
|---|---|---|
| Tax authority | IRS (US Treasury) | State Department of Revenue |
| Rate structure | 7 progressive brackets (10–37%) | Varies: 0% to 13.3%, flat or progressive |
| Standard deduction (2026) | $15,700 (single) / $31,400 (MFJ) | Varies by state ($0 to $15,000+) |
| Filing deadline | April 15 | Usually April 15 (varies by state) |
| Social Security income | Taxable above thresholds | Exempt in most states |
| State tax deduction | Yes (SALT, capped at $10,000) | Not applicable |
| Tax forms | 1040 | State-specific (varies) |
Combined Federal + State Rates
Your true marginal rate is the combination of both:
| Federal Bracket | State Rate (Example) | Combined Marginal Rate |
|---|---|---|
| 12% | 0% (Texas) | 12% |
| 12% | 5% (Michigan flat) | 17% |
| 22% | 0% (Florida) | 22% |
| 22% | 5% (North Carolina) | 27% |
| 24% | 9.9% (Oregon) | 33.9% |
| 32% | 13.3% (California) | 45.3% |
| 37% | 13.3% (California) | 50.3% |
A high earner in California faces a combined top rate over 50%. The same earner in Texas faces 37% (federal only). That's a 13+ percentage point difference.
How They Interact: The SALT Deduction
The biggest interaction between federal and state taxes is the State and Local Tax (SALT) deduction on your federal return. If you itemize, you can deduct state income taxes, property taxes, and local taxes paid — but only up to $10,000 combined ($5,000 if married filing separately).
| SALT Components | Deductible? |
|---|---|
| State income tax paid | Yes (up to $10K total SALT) |
| Property tax paid | Yes (up to $10K total SALT) |
| Sales tax paid (alternative to income tax) | Yes (up to $10K total SALT) |
| Real estate transfer tax | No |
For someone paying $8,000 in state income tax and $6,000 in property tax, only $10,000 of that $14,000 total is deductible. This cap disproportionately affects residents of high-tax states like New York, California, and New Jersey.
Different Definitions of Income
Federal and state taxable income often differ because states may:
| State Difference | Examples |
|---|---|
| Exempt certain income types | PA exempts retirement plan distributions |
| Use different standard deductions | Some states have much smaller standard deductions |
| Not allow certain federal deductions | Some states don't allow the qualified business income deduction |
| Add state-specific deductions | Some states offer extra deductions for education, rent, etc. |
| Start with federal AGI | Most states begin their calculation from your federal AGI |
This means your state taxable income may be higher or lower than your federal taxable income — even though both start from the same gross income.
Planning Across Both Systems
| Strategy | Federal Impact | State Impact |
|---|---|---|
| Max out 401(k) | Reduces taxable income | Usually reduces state income too |
| Charitable donations (itemize) | Reduces federal tax | Reduces state tax (if state follows federal itemization) |
| Roth conversion | Increases taxable income | Increases state taxable income too |
| Moving to a no-tax state | No federal impact | Eliminates state income tax |
| Working in a reciprocal-agreement state | No federal impact | Simplifies state filing |
For all state rates, see State Income Tax Rates 2026. For the total tax picture by state, read Highest and Lowest Tax States. And for retirement-specific state taxes, check State Tax on Retirement Income.
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