The recession has been tough on everybody, state governments included. Many states are struggling with budget deficits as tax revenues decrease and expenses, like unemployment payments, increase. Some states have raised various taxes across the board, including income taxes, to help cover their growing deficits.
State Income Tax Increases
- California added 0.25% to each income tax bracket, effective January 1, 2009 and ending December 31, 2010. The state also increased paycheck withholding rates by 10% for each tax bracket, effective November 1, 2009.
- Connecticut added a third income tax bracket of 6.5% on income over $500,000 for single filers and $1 million for joint filers, effective January 1, 2009. The state also delayed increases to personal exemptions and credits for three years and added a 10% corporate tax surcharge for 2009-2011.
- Delaware added a new top bracket of 6.95% on income over $60,000, an increase from the former 5.55% top rate, effective January 1, 2009. Business gross receipts tax rates were also increased across the board.
- Hawaii added three new tax brackets effective January 1, 2009. The new rates are 9% on income over $150,000; 10% on income over $175,000; and 11% on income over $200,000. The state has also delayed sending out all 2009 refund checks until July 1, 2010 to help cover budget deficits.
- New Jersey created three new brackets for 2009: 8% on income over $400,000; 10.25% on income over $500,000; and 10.75% on income over $1 million.
- New York added two additional tax rates: 7.85% on income over $200,000 ($300,000 for joint filers) and 8.97% on income over $500,000. This is effective January 1, 2009 and is slated to end December 31, 2011. Beginning April 7, 2009, people who have adjusted gross income over $1 million cannot claim itemized deductions, except for 50% of their Federal charitable contributions deduction.
- North Carolina imposed a tax surcharge of 2% on people with income over $60,000 ($100,000 for joint filers) and 3% on people with income over $150,000 ($250,000 for joint filers), effective January 1, 2009 and ending December 31, 2010. The state also created a new 3% tax surcharge for corporations.
- Oregon voters approved the addition of two new tax brackets effective January 1, 2009, and ending December 31, 2011: 10.8% on income over $125,000 and 11% on income over $250,000. After 2011, the former bracket will be reduced to 9.9% and the top bracket will be eliminated. Oregon also increased corporate income taxes this year.
- Wisconsin added a new top rate: 7.75% on income over $225,000 ($300,000 for joint filers).
State Income Tax Decreases
Despite the hard times, some states have managed to give their citizens some much needed tax cuts.
- Louisiana reduced tax rates by adjusting their tax brackets. Starting January 1, 2009, the top income tax bracket of 6% will now be levied at $50,000 of income instead of $25,000 of income.
- North Dakota made modest cuts to each income tax rate (a decrease of less less than one percentage point to each tax bracket), effective January 1, 2009. The top tax rate was reduced from 5.54% to 4.86%.
- Ohio made some major changes in 2009. The state began to phase out the corporate income tax, implement a gross receipts tax, and phase out the inventory tax. They also cut the sales tax slightly, and made plans to reduce the individual income tax by 21% over five years. However, the income tax reduction scheduled for 2010 has been postponed.
- Vermont reduced income taxes slightly. For 2009 the top income tax rate was reduced from 9.5% to 9.4%. After January 1, 2010, the top rate drops to 8.95%. More tax reductions or changes are being considered.