A Guide to US Income Tax

In the United States, income tax is set by the federal government, but some states also levy their own. In general, anyone who earns income in the USA is subject to income tax at federal and state level. There are some exceptions, however, such as Social Security benefits and certain other types of retirement benefits.

In the United States, income taxes are levied at both federal and state level. The federal government collects income tax from individuals and businesses operating in the United States, while state governments also tax their residents.

The federal tax system is progressive, which means people with higher incomes pay a larger share of their income in tax than people with lower incomes. What you pay depends on your filing status and your taxable income, and it is assessed by the federal tax authority, the Internal Revenue Service (IRS). State governments also levy their own taxes, and rates and rules can vary slightly from state to state.

At federal level, taxpayers pay a rate based on their income, their filing status and the number of dependents. As a rule: the higher your income, the higher your tax rate. Taxpayers can also claim a range of deductions and credits to reduce their taxable income or increase their refund.

At state level, tax rates often come down to geography: some states don't tax income at all, while others have a flat or progressive structure. Tax credits and deductions may also be available at state level.

Besides income taxes, the United States has many other types of tax, such as property taxes, sales taxes and excise taxes. These aren't levied directly by the federal authorities, but by state and local governments.

Wherever you live, it's important to understand the tax system so you file every required form and pay the right amount of tax each year. A qualified accountant or tax advisor can help make sure you stay compliant.

In general, anyone who is resident in the United States or has income from US sources must file an annual income tax return and may owe tax.

This includes:

• US citizens

• Residents with a green card or visa

• People who meet the Substantial Presence Test

• Nonresidents with income from US sources

If you're a European citizen with income from the USA, you may have to pay US tax on that income, depending on how long you stay in the country. If you spend more than 183 days in the USA within a 12-month period, you are generally treated as a "resident" for tax purposes and are liable for tax in the USA.

If you're not resident in the USA but have income from US sources, you may have to pay tax in the United States even though you don't live here.

That's because the United States taxes all income earned within its borders, as well as all income "effectively" connected with a trade or business carried on in the country, regardless of where you live or which citizenship you hold.

In practice: if you have wages earned in the USA, dividends from American investments, interest from US-based accounts or winnings from certain types of gambling in the USA, you have to pay tax on them under IRS rules and regulations.

In addition, all foreign persons doing business in the United States must pay US tax on the income from that business.

If you're not sure whether you need to file a return, your best move is to talk to a qualified tax professional who can help you understand your obligations under US law and guide you through filing every required return and paying any tax due correctly and on time.

Income tax is the main tax levied on individuals in the United States. It's a progressive tax, meaning people with higher incomes pay a higher rate than people with lower incomes. Self-employment tax may also apply if you have self-employment income. On top of that, some states have their own taxes, which may apply depending on where you live.

Yes! Depending on your situation, you may be able to claim certain deductions or credits that reduce the amount of tax you owe. Commonly claimed deductions include home office expenses, health insurance premiums and charitable donations.

If you're liable for tax on US income, you must file a US tax return by April 15 each year. The exact due date depends on which state you live in and on your filing status.

How much tax you owe depends on several factors, including your filing status, your income bracket and your state of residence. In the United States, federal income tax is calculated on a progressive rate system: the more you earn, the higher the rate you pay.

State taxes come with their own rates and laws. Some states have no income tax at all, while others have a flat rate or a progressive system.

Nine states levy no income tax on wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Washington does, however, tax large private capital gains at 7%. In the remaining states, top rates in 2026 range from 2.5% in Arizona and North Dakota to 13.3% in California. For detailed information on every US tax, from sales tax to state income tax, click here.

How high is income tax in New York?

New York State income tax rates range from 4% to 10.9%, depending on income; only New York City and Yonkers levy their own local income taxes on top. You can estimate your taxes with the online tax calculator of the New York State Department of Taxation and Finance.

The good news on tax liability: the USA has more than 60 tax treaties with other countries, and fortunately most European countries are among them. As a resident of one of these countries, you're protected from double taxation, even if you technically become liable for tax in the USA.

Either a reduced rate applies or you're even fully exempt from US tax on certain income.

You still have to file a US tax return either way! Even if in the end you pay little or no tax.

These countries have a tax treaty with the US:

Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belgium, Bulgaria, Canada, Chile, China, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad, Tunisia, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan, Venezuela.

Three treaties no longer apply, or apply only in part, and this is often overlooked: The US terminated its treaty with Hungary; it no longer applies to taxes from January 1, 2024. The treaties with Russia and Belarus are partially suspended. If you have income connected to any of these three countries, you can no longer rely on treaty protection. Vietnam signed a treaty with the US in 2015 that has still not entered into force. A new addition is Chile, whose treaty has applied since the end of 2023. The authoritative source is always the IRS treaty list.

US income tax law is fairly complex and changes all the time. With the right advice, though, understanding income tax in the United States can be much easier than it first looks. If you have any questions, get in touch anytime and book a consultation through our consultation page.

Here you can find out which states are especially popular with foreign investors, and why.

For more on the American tax system, read our article US Taxes: A Beginner's Guide and our compact introduction to US tax law for European entrepreneurs. You'll find more articles under News. 

Everything about the tax-free exempt LLC is here.

Law and data as of: OECD, Taxing Wages 2026 (April 22, 2026, data year 2025); IRS, United States Income Tax Treaties A to Z (accessed August 31, 2026); IRS Rev. Proc. 2025-32 for tax year 2026.

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