State Taxes vs. Federal Taxes in the USA

In the United States, a multi-tiered income tax system allows federal, state, and sometimes local governments to collect taxes from individuals and businesses. While both federal and state taxes are based on taxable income, they differ significantly in tax rates, taxable income definitions, and criteria for taxation. Additionally, tax credits and deductions vary greatly between state and federal taxes. We offer accurate state representation services tailored to the needs of our clients in their specific states.

The federal tax system allows taxpayers to claim either a standard deduction or itemized deductions, but not both. The Tax Cuts and Jobs Act (TCJA) significantly increased standard deductions in 2018. As of 2019, the standard deduction amounts are $12,200 for single taxpayers, $18,350 for head of household filers, and $24,400 for married couples filing jointly.

Many states also offer partial or full exemptions on retirement income, which is fully taxable at the federal level. This is why retirement planning and advisory services are essential in the U.S. to ensure your retirement income is not heavily taxed. Additionally, tax treatment of bond interest differs: state taxes exempt interest on U.S. savings bonds, while federal taxes do not.

There are also major differences in tax credits between state and federal taxes, which necessitates distinct state representation services. For example, New York offers a tax credit worth 20% of premiums paid for long-term care insurance, while federal laws do not provide such a credit. However, federal tax credits do cover areas like retirement savings, educational expenses, and dependent care expenses. Moreover, the International Rescue Committee (IRC) provides an earned income tax credit, and 29 states, plus the District of Columbia, also offer their versions of this credit. Personal tax filing in the U.S. has notable differences between state and federal requirements.

State withholding tax also differs from federal withholding tax. While both operate similarly, states have their own version of Form W-4. Local and state governments can impose withholding on wage income, each with their own tax rates. Both state and federal income taxes may be withheld, but you cannot withhold both at the same time. It’s worth noting that seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—do not impose an income tax. Tennessee and New Hampshire tax interest and dividend income but do not have withholding for wages.

If you find yourself confused by the complexities of state taxation in the U.S., feel free to request a free consultation with our representatives about our state representation services. We also offer an additional three months of free service from our portfolio, tailored to your needs, along with state representation in the U.S.

State Audit Representation Services in USA

If you receive a state audit notice in the U.S. from your state’s department of revenue or taxation, stay calm. CharlestonTaxcity offers expert audit representation services nationwide. Our dedicated team specializes in state representation and understands the complexities of state audits. 

We recommend clients not represent themselves, regardless of the audit’s perceived simplicity. Our precise tax filing and preparation services ensure timely submissions and reduce the likelihood of audits. 

As tax laws continuously change, we provide exceptional taxpayer representation to protect clients from potential penalties and fines. Our services include state audit representation for both individuals and businesses.

We encourage you to stay informed by following our News Section, where you will find ongoing updates and important developments in the areas of business, accounting, and taxation across the United States.