Difference between federal and state taxes

Updated on January 14, 2026

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Difference between federal and state taxes in the US

Federal taxes are collected by the IRS to fund national programs, while state taxes are collected by individual states to fund local services like schools, roads, and healthcare.

When people talk about the difference between federal and state taxes, they are really talking about two separate layers of government that both want a slice of your income. As a US expat, it can feel even more confusing, because you might be dealing with a foreign tax system on top of the US rules.

But at a basic level, you are paying two different sets of tax authorities that do different jobs and use different laws.

Federal income tax vs state income tax: who are you actually paying?

Federal income tax goes to the US federal government, and it is collected by the IRS.

This is the tax that applies to US citizens and resident aliens on their worldwide income, no matter where they live. So even if you live in another country full time, the federal government still expects you to file a US return if you meet the usual thresholds.

Federal income tax helps fund nationwide programs and operations, such as:

Federal agencies and departments
National programs like Social Security and Medicare (through related taxes and transfers)
Federal infrastructure and services

Your federal tax is calculated using:

Federal tax brackets
Federal deductions and credits
Federal filing rules that apply across all states and to expats as well

On the “federal” side, you are paying the country as a whole. That part does not disappear just because you move abroad.

Who are you paying when you pay state income tax?

State income tax is completely separate. It is collected by a state tax department, not the IRS, and the money goes to that particular state’s government. Examples include:

California Franchise Tax Board
New York State Department of Taxation and Finance
Virginia Department of Taxation

State income tax helps pay for state level services, for example:

State schools and universities
State roads and public transport
State health and public safety programs

What does this mean for US expats?

As a US expat, whether you still have to pay state income tax depends mostly on whether your old state still considers you a resident or treats some of your income as taxable in that state. This is why expats often spend time cutting ties with a high-tax state before moving abroad.

Do all states have income tax, and which states do not?

Do all states have an individual income tax?

No, they do not. Most states tax personal income in some way, but a group of states choose not to tax regular wage and salary income at all.

States with no broad individual income tax on wages currently include:

Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming

If you live and work in one of these states, you generally will not see “state income tax” withheld from your paycheck for wages. That does not mean you pay no tax at all. It just means the state raises money in other ways, such as sales tax, property tax, or business taxes.

There are also states that have more limited income tax systems. For example, some historically taxed mainly interest and dividends rather than wages. However, the exact rules can change over time.

From a US expat’s perspective, this part of the difference between federal and state taxes matters a lot for two reasons:

Whether you still have to file a state return
- If your last state of residence has an income tax and still considers you a resident, it may expect you to file a state return and report your income, even while you live overseas.
- If you cut ties with that state and are considered to have left, you may no longer have a state filing obligation, especially if you move your “home base” to a state with no income tax.
How you plan before moving abroad
- Some expats deliberately change their domicile to a no-income-tax state before they leave the US.
- Others do not change anything and later discover their old state still sees them as residents and wants tax on worldwide income.

If my state has no income tax, am I completely done with state taxes?

Not necessarily. Even in a no-income tax state, you may:

Still pay property tax if you own real estate there.
Pay sales tax when you buy things in that state.
Face other state-level fees or business taxes.

However, from a personal income tax standpoint, living in a no income tax state usually means you do not file an annual state income tax return for wages, which is a meaningful relief compared to high tax states.

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Federal tax brackets vs state tax rates: how do they fit together?

Another practical part of the difference between federal and state taxes is how the rates and brackets stack. You do not choose between federal and state. You may pay both, and each level uses its own system.

How do federal tax brackets work?

Federal income tax is structured using progressive tax brackets.

Here is the basic idea:

The first chunk of taxable income is taxed at the lowest rate.
The next chunk is taxed at a higher rate.
This continues through several brackets as income increases.

Your marginal rate is the highest federal bracket that applies to you, but your average or effective rate is lower because some of your income is still taxed at the earlier, lower rates. These brackets are set at the national level and adjust for inflation every year.

If you are a US expat, your federal tax is still calculated using these brackets, even though you live abroad. You may reduce your federal tax with tools like the Foreign Earned Income Exclusion or the Foreign Tax Credit, but the underlying bracket structure is the same.

How do state tax rates work compared to federal brackets?

State systems vary a lot more. States that tax income can choose their own style of rates. Common approaches are:

Progressive rates
- Similar to the federal system. Income is taxed in bands, and higher bands have higher percentages.
Flat rates
- A single percentage applied to all taxable income, regardless of how high or low your income is.
Special or limited systems
- Some states design special rules for certain types of income or have very narrow income taxes.

Do federal tax brackets and state rates stack on top of each other?

Yes, they do. You do not pay one “combined” rate. You calculate each system separately.

For someone living and working in a state that has an income tax:

Federal tax is calculated based on federal brackets and federal rules.
State tax is calculated separately using that state’s tax rates and rules.

Standard deduction at the federal vs state level: do you get both?

You can usually claim both a federal and a state standard deduction, but the amounts and rules differ because each system operates independently.

Do you get a standard deduction on your federal tax return?

Yes, most individual taxpayers do. On your federal Form 1040, you generally choose between:

Taking the standard deduction, or
Itemizing deductions on Schedule A

You only choose one method each year at the federal level. For many people, especially those without a mortgage or large deductible expenses, the standard deduction is the simpler and better option.

Living abroad does not automatically take away your federal standard deduction. You usually can still claim it as long as you:

File a regular individual return (Form 1040), and
Do not fall into one of the special categories that restrict it, such as certain married filing separately situations or being claimed as someone else’s dependent

Do states offer their own standard deduction, or do they copy the federal amount?

This is where the difference between federal and state taxes starts to show more clearly. States are not required to follow federal deduction rules. Each state decides for itself how to handle deductions.

Common patterns include:

Some states have a standard deduction that works somewhat like the federal one but with different amounts.
Some states offer a smaller standard deduction or a personal exemption structure instead.
Some states have no standard deduction at all and use a different set of credits or adjustments.

That means you might:

Claim the federal standard deduction, and
Claim a state standard deduction if your state offers one, or work within a different deduction or credit system if it does not.

They are separate calculations. One does not automatically control the other.

Federal vs state filing rules: do you need to file two tax returns?

Another big part of understanding the difference between federal and state taxes is knowing how many returns you actually need to file.

Do you always have to file a state tax return as an expat?

No. This is where the difference between federal and state taxes can really matter. States have their own rules about who is a resident and who must file. They may look at:

Where your domicile is (your long-term legal home)
Whether you keep a home, spouse, or dependents in the state
Whether you still hold a driver’s license, voter registration, or bank accounts there
Whether you receive income sourced to that state, such as rental income or wages for work performed there

Common expat scenarios include:

Only a federal return is required
- You last lived in a state with no income tax, or
- You left a taxing state and successfully broke residency, with no remaining state source income.
A federal return plus a state return is required
- Your old state continues to treat you as a resident because you kept strong ties, or
- You are a nonresident but still have income from that state, such as rent from a property you own there.

So you might file one return or more than one, depending on how your situation lines up with state law.

Are filing deadlines and extensions the same for federal and state returns?

Often they line up, but they are not guaranteed to be the same.

For federal returns:

The typical due date is in mid-April.
US expats usually get an automatic 2-month extension to file, to around mid-June.
You can request a further extension, often to mid-October, by filing Form 4868.

For state returns:

Many states follow the federal date, but not all.
Some states automatically accept the federal extension.
Other states require a separate extension request or payment to move the deadline.