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State Income Tax Laws

Many states in the U.S. have state income tax laws. Individuals often get confused with circumstances involving their state income tax liability. Uncertainties on what the state income tax is or what the consequences are for not filing a state income tax return often lead to questions like the ones answered below that have been answered by the Experts.

What is state income tax?

Most but not all U.S. states collect state income taxes. State income tax rate varies by state. States that impose the state income tax are not allowed to tax income from federal bonds or other obligations. Most states also do not tax Social Security benefits or interest income from state obligations. State income tax is an allowable deduction in the computation of the federal income tax with limitations.

If someone receives a pension from the State of Illinois and have has a deferred compensation plan with the state, as long as the individual is an Illinois resident, distributions from these two sources are not taxed by Illinois, however if the individual were to move to New York State, Vermont, or New Hampshire, will they lose tax exemption?

The state of Illinois does not tax pensions that individuals receive. The pension and deferred compensation income that you receive will be considered taxable to the state of your residence based on the date received. The state that you reside in will be the deciding factor on if it will be taxable or not. It does not matter that the state it was constructed in does not tax it.

Is a business required by law to withhold state income tax from interns if the interns live out of state from which the work is performed?

State income tax should be withheld by the employer for employees based on the location of where the employee is working. Where the employee lives does not pertain to the state income tax that the employer withholds. The employee would be responsible for their own state taxes for where they live.

Do federal retirees pay state income tax in North Carolina?

Many states have different state income tax laws. According to North Carolina state income tax rules an individual will not have to pay state income tax on their retirement benefits if they are a qualified federal retirement plan under the Bailey Decision.

If your plan is a Federal Civil Service retirement and you have vested 5 years then you are eligible to omit it from your income for income tax purposes. It basically turns into a deduction if you complete the North Carolina tax form D-400.

What are the consequences for not filing a state income tax return?

In all states that have a state income tax there is no statute of limitation for unfiled returns. For filed returns that are not fraudulent the statute of limitations is generally a few years and begins to run at the time of the filing of the return or when the state income tax is paid.

The consequences for not filing a state income tax return will vary depending on if you owe money to the state and what amount you may owe. Most states will add penalties and interest to the amount you owe and could take action to put levies on your assets.

Understanding and correctly identifying information about state income tax laws can help when dealing with questions about state income taxes. Experts can help answer what state income tax is or what the consequences are for not filing a state income tax return. Get the answers fast and affordably by asking an Expert.

Ask a Tax Professional

Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: General
Satisfied Customers: 572
Experience:  10 years experience
16356563
Type Your Tax Question Here...
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4 Tax Professionals are Online Now

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Tax Professionals are online & ready to help you now

Wallstreet Esq.
Tax Attorney
Satisfied Customers: 570
10 years experience
Wendy Reed
Enrolled Agent
Satisfied Customers: 3052
15+ years tax preparation and tax advice.
Mark D
Enrolled Agent
Satisfied Customers: 985
MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Recent State Income Tax Questions

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    If I transfer my 529 Plan for my grandchild to her parent (my son), would it be a taxable event to the new owner of the Plan (my son/the parent)? What if I name my son/parent 9instead of my spouse/grandmother)as the beneficiary of the Plan in the event of my death, would that be a taxable event to my son or my estate?
  • I am about to close my S corp. Have 2 receivables that won't

    I am about to close my S corp. Have 2 receivables that won't be paid by year end and don't want to keep the corp open another year. What happens if I write off the receivables and then the clients pay? Can I receive the money personally and report it on my personal return?
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    I am regularly trading securities for a decent profit as a side business. At what point (dollar ammount?) should I consider forming an LLC in order to best position myself for taxation purposes? Also, from what I have read an S-Corp would be simpler and more beneficial - is that true?
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