State Income Tax Rates for Business Owners (2026)
Most US businesses are LLCs, S corporations, partnerships or sole proprietorships, and their profit is taxed on the owner's personal return. 9 states have no income tax on that profit, 14 charge a flat rate and 27 use brackets.
A pass-through business doesn't pay income tax itself. Its profit passes to its owners, who pay federal and state personal income tax on it whether or not they withdraw the cash. For most small business owners, the state personal income tax rate matters more than the corporate tax rate.
In 2026, top state rates range from 0% in 9 states to 13.3% in California. Many states have moved to flat taxes in the past five years, and rates fell again in 2026 in Georgia, Utah, West Virginia, South Carolina, Oklahoma and Nebraska.
No income tax on business profit
9 states
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming
Flat income tax
14 states
From 2.5% in Arizona
Highest top rate
13.3%
California
Personal income tax rates by state, 2026
| State | Top rate | Structure | Top rate starts at | Notes |
|---|---|---|---|---|
| Alabama | 5% | Up to 5% | $3,000 | |
| Alaska | None | None | – | |
| Arizona | 2.5% | 2.5% flat | First dollar | |
| Arkansas | 3.9% | Up to 3.9% | $4,600 | |
| California | 13.3% | Up to 13.3% | $1,000,000 | |
| Colorado | 4.4% | 4.4% flat | First dollar | |
| Connecticut | 6.99% | Up to 6.99% | $500,000 | |
| Delaware | 6.6% | Up to 6.6% | $60,000 | |
| Florida | None | None | – | |
| Georgia | 4.99% | 4.99% flat | First dollar | Flat 4.99% after HB 463 (2026). |
| Hawaii | 11% | Up to 11% | $325,000 | |
| Idaho | 5.3% | 5.3% flat | $4,811 | |
| Illinois | 4.95% | 4.95% flat | First dollar | |
| Indiana | 2.95% | 2.95% flat | First dollar | Counties add local income tax. |
| Iowa | 3.8% | 3.8% flat | First dollar | |
| Kansas | 5.58% | Up to 5.58% | $23,000 | |
| Kentucky | 3.5% | 3.5% flat | First dollar | |
| Louisiana | 3% | 3% flat | First dollar | |
| Maine | 7.15% | Up to 7.15% | $64,849 | |
| Maryland | 6.5% | Up to 6.5% | $1,000,000 | Counties add 2.25% to 3.3%. |
| Massachusetts | 9% | Up to 9% | $1,083,150 | 5% flat plus a 4% surtax on income above $1,083,150. |
| Michigan | 4.25% | 4.25% flat | First dollar | Some cities, including Detroit, add a city income tax. |
| Minnesota | 9.85% | Up to 9.85% | $203,150 | |
| Mississippi | 4% | Up to 4% | $10,000 | |
| Missouri | 4.7% | Up to 4.7% | $9,436 | |
| Montana | 5.65% | Up to 5.65% | $47,500 | |
| Nebraska | 4.55% | Up to 4.55% | $24,760 | |
| Nevada | None | None | – | |
| New Hampshire | None | None | – | No tax on wages; the Interest & Dividends Tax was repealed from 2025. |
| New Jersey | 10.75% | Up to 10.75% | $1,000,000 | Rates shown for single filers. |
| New Mexico | 5.9% | Up to 5.9% | $210,000 | |
| New York | 10.9% | Up to 10.9% | $25,000,000 | NYC residents pay an additional 3.078% to 3.876%. |
| North Carolina | 3.99% | 3.99% flat | First dollar | |
| North Dakota | 2.5% | Up to 2.5% | $244,825 | |
| Ohio | 2.75% | 2.75% flat | $26,050 | 0% up to $26,050, then 2.75%. Most cities add 1% to 2.5%. |
| Oklahoma | 4.5% | Up to 4.5% | $7,200 | |
| Oregon | 9.9% | Up to 9.9% | $125,000 | |
| Pennsylvania | 3.07% | 3.07% flat | First dollar | Many municipalities add an earned income tax. |
| Rhode Island | 5.99% | Up to 5.99% | $186,450 | |
| South Carolina | 5.21% | Up to 5.21% | $30,000 | Act 110 (2026) moved to two rates: 1.99% and 5.21%. |
| South Dakota | None | None | – | |
| Tennessee | None | None | – | |
| Texas | None | None | – | |
| Utah | 4.45% | 4.45% flat | First dollar | Statutory 2026 rate. |
| Vermont | 8.75% | Up to 8.75% | $249,700 | |
| Virginia | 5.75% | Up to 5.75% | $17,000 | |
| Washington | None | None | – | No tax on wages. 7% capital gains tax (9.9% above $1M); a 9.9% tax on income over $1M is enacted from 2028. |
| West Virginia | 4.58% | Up to 4.58% | $60,000 | Rates cut 5% by SB 392, retroactive to January 1, 2026. |
| Wisconsin | 7.65% | Up to 7.65% | $332,720 | |
| Wyoming | None | None | – |
Bracket thresholds are for single filers on taxable income, after deductions. Married couples filing jointly often have wider brackets.
States with no income tax on business profit
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming don't tax wages or pass-through business income. Owners of LLCs, S corporations and sole proprietorships living there pay only federal income tax on their profit. But no income tax doesn't always mean no business tax:
- Texas charges a franchise (margin) tax on businesses with revenue above $2.65 million, LLCs included.
- Tennessee charges its 6.5% excise tax and 0.25% franchise tax on LLCs, S corporations and limited partnerships, not just C corporations.
- Washington charges B&O tax on gross receipts and a 7% to 9.9% tax on large capital gains.
- Nevada charges the Commerce Tax on revenue above $4 million and a modified business tax on payroll.
- New Hampshire has no tax on wages or, since 2025, interest and dividends, but charges a 7.5% Business Profits Tax and a 0.55% Business Enterprise Tax on larger businesses, including LLCs.
- Alaska, Florida, South Dakota and Wyoming don't tax pass-through income at all. Florida and Alaska tax C corporations.
Highest rates and lowest flat taxes
Highest top rates
- 1. California13.3%
- 2. Hawaii11%
- 3. New York10.9%
- 4. New Jersey10.75%
- 5. Oregon9.9%
- 6. Minnesota9.85%
Local income taxes
State rates aren't the whole picture in some places. Cities and counties add their own income taxes in:
- New York City: 3.078% to 3.876% for residents, plus an unincorporated business tax of 4% on self-employed owners and LLCs.
- Maryland: every county adds 2.25% to 3.3%.
- Ohio, Pennsylvania and Michigan: many cities, including Philadelphia, Columbus and Detroit, tax wages and business profit.
- Indiana: every county adds its own income tax.
- Oregon: Portland-area residents pay Metro and Multnomah County taxes on higher incomes.
Planning for pass-through owners
Where you live decides most of your tax. A pass-through owner pays income tax to their home state on all their income, wherever the LLC is registered. A California resident with a Wyoming LLC still pays California tax, plus California's $800 LLC tax if the LLC does business there. See LLC fees by state for the cost of registering in more than one state.
Use the pass-through entity tax election. Paying state tax through the business makes it deductible federally, getting around the federal cap on deducting state and local taxes. For an owner with $300,000 of profit in a 5% state, the federal saving is roughly $5,000 a year.
Watch where the work is done. If you serve clients in other states, you may owe tax there too, with a credit at home. States with reciprocity agreements, such as Pennsylvania and New Jersey, tax wages only in the home state.
Frequently Asked Questions
Which states have no state income tax for business owners?
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not tax wages or business profit passed through to owners. Washington taxes large capital gains, and Tennessee, Texas, Nevada and Washington tax businesses through franchise, excise or gross receipts taxes, so the business itself can still owe state tax.
How are LLC owners taxed at the state level?
By default, an LLC's profit passes through to its owners, who pay their state's personal income tax on it, whether or not they take the money out. A multi-member LLC is taxed as a partnership and a single-member LLC as a sole proprietorship. If the LLC elects S corporation status, the same personal rates apply to the owner's share of profit.
Which states have the highest income tax rates?
California (13.3%), Hawaii (11%), New York (10.9%), New Jersey (10.75%), Oregon (9.9%), Minnesota (9.85%) have the highest top rates in 2026. New York City residents also pay a city income tax of 3.078% to 3.876%, and Maryland counties add 2.25% to 3.3%.
Which states have a flat income tax?
14 states tax income at a single rate in 2026: Arizona (2.5%), Colorado (4.4%), Georgia (4.99%), Idaho (5.3%), Illinois (4.95%), Indiana (2.95%), Iowa (3.8%), Kentucky (3.5%), Louisiana (3%), Michigan (4.25%), North Carolina (3.99%), Ohio (2.75%), Pennsylvania (3.07%), Utah (4.45%). Some exempt a first slice of income; Ohio, for example, taxes nothing below $26,050.
Do I pay income tax in the state where my LLC is formed or where I live?
You pay income tax to the state where you live on all your income, and to any other state where the business earns income, with a credit at home for tax paid elsewhere. Forming an LLC in Wyoming or Nevada doesn't avoid tax in your home state.
What is a pass-through entity tax election?
Most states with an income tax let partnerships and S corporations elect to pay state income tax at the entity level. The business deducts the tax federally, getting around the federal cap on deducting state and local taxes, and the owners receive a credit on their state returns.
Is it better to be taxed as an S corporation or a C corporation for state tax?
In most states, an S corporation's profit is taxed once at personal rates, while a C corporation pays corporate tax and its owners pay personal tax again on dividends. A few states, including California, also charge S corporations a small entity-level tax, 1.5% in California. Compare both on the state corporate tax rates page.