What Is the Difference Between State & Federal Taxes?

In the United States you generally pay taxes twice — first to the government, then to the state in which you work. Taxes paid to the government are called "federal" taxes, and the taxes paid to the state are called "state" taxes. Federal taxes are the same for all states, but state taxes vary by state.

Income including wages earned, real estate, property, sales proceeds, imported goods plus all inheritances and gifts are subject to tax in the United States. Additionally, individuals and corporations must pay taxes.

State taxes are collected and administered by the Department of Revenue in your state. For example, if you live in New York, the New Your Department of Revenue would be responsible for New York state taxes. The Internal Revenue Service collects and administers federal taxes.

Everyone pays federal income taxes — that is, tax on wages or income, and most people also pay state income taxes as well. However, a minority of states — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — do not have state income taxes. However, just because these states do not have state income tax, does not mean the state does not tax for other things. For example, you may still be charged a state tax if you receive a gift or inheritance or sell property in these states.

The rate at which you are taxed by the federal government is the same no matter what state you live or work in. However, state income tax rates vary by state since the taxes are regulated by each state rather than by the federal government.