Idaho State Income Tax: Rates and Who Pays in 2023-2024

State tax is the taxation of income and transactions within a specific state, contributing to its financial resources. So, are you a resident of a tax haven state, or is your state tax putting a toll on your income? Nestled amidst the striking beauty of the Rocky Mountains and the vast expanse of the Pacific Northwest, the Idaho state income tax system holds significant sway over the economic dynamics of this state. With a shift to a flat income tax rate of 5.8% in 2023, Idaho presents a unique landscape for residents, non-residents, and part-year residents. 

This blog will discuss Idaho’s 2022-2023 income tax rates and their implications, including details on the taxation of retirement benefits. It will also provide insights into the state’s broader tax framework and considerations. Also, check out Beem Tax Calculator to get a quick and accurate estimate of your federal and state tax refund for free.

Does Idaho Have a State Income Tax

Idaho imposes a state income tax featuring a flat rate of 5.8% for individual incomes. The state also levies a 5.8% corporate income tax rate. While Social Security benefits are exempt from taxation, other retirement incomes are subject to scrutiny. Despite its low sales tax rates, Idaho remains one of the few states that taxes groceries, presenting a unique contrast.

With a 6% state sales tax rate, a 3% maximum local sales tax rate, and an average combined state and local sales tax rate of 6.02%, Idaho maintains a balanced tax framework, offering advantages and specific considerations for residents and businesses.

Idaho State Income Tax – How much will the income after tax in Idaho with Filing Status

Idaho State Income Tax Rates And Tax Brackets

For the 2023 tax year, Idaho enforced a flat income tax rate of 5.8% on income exceeding $2,500 ($5,000 for joint filers), with annual adjustments for inflation. This rate applies to earnings surpassing $4,489 for individual filers, while for joint filers, it applies to incomes exceeding $8,978. This adjustment stems from House Bill 172, effective January 1, 2023. 

Notably, Idaho does not levy taxes on Social Security and Railroad Retirement benefits. 

Individuals aged 65 or older (or 62 with a disability) might qualify for deductions on distributions from various retirement plans, including 

• Military Retirement, 
• Civil Service Retirement (contingent on account number eligibility), 
• Idaho Firemen’s Retirement Fund and 
• The Policemen’s Retirement Fund of Idaho City.

Below is a comprehensive table outlining Idaho state income tax rates and corresponding brackets for the year 2023:

Also, know about – Montana State Income Tax

What is Idaho’s Standard Deduction?

Standard Deduction

Idaho’s standard deduction initially mirrors the federal standard deduction, determined by your filing status. In 2021, the federal standard deduction is

• $12,550 for single and married filing separately, 
• $25,100 for married filing jointly, and 
• $18,800 for heads of households. 

Additionally, Idaho provides an extra standard deduction for visually impaired taxpayers, those born before January 2, 1957, and individuals who reported charitable contributions on their federal tax return.

Itemized Deductions

• Idaho permits the inclusion of federal itemized deductions but suggests considering the standard deduction for potential benefits.
• When itemizing deductions on an Idaho return, the state mandates adding any previously deducted state, local, or general sales tax from the federal Schedule A before declaring the total deduction amount. Moreover, certain circumstances necessitate itemizing, such as when choosing to itemize separately from a spouse or having dual residency status during the tax year.

Dependent Care Tax Deduction

The current yearly maximum deduction for dependent care has risen to $12,000. Eligible dependents encompass a taxpayer’s children under 13 and individuals with physical or mental limitations.

How to Calculate Idaho State Income Tax

1. Obtain and Update Form W-4: Obtain the Federal Form W-4 for each employee and encourage using the most recent Form ID W-4 for Idaho withholding updates.
2. Choose the Calculation Method: Select the appropriate method for computing withholding: Percentage Computation, Annualized Wage, or Wage Bracket.
3. Account for Supplemental Wages: Determine if the employee receives supplemental wages and apply the relevant calculation method accordingly.
4. Reference Idaho Child Tax Credit Allowance Table (ICTCAT): Use the ICTCAT to identify the applicable withholding allowances based on the payroll frequency.
5. Use the Withholding Chart: Refer to the suitable withholding chart, considering the employee’s marital status and number of allowances.
6. Compute Taxable Income: Calculate the taxable income subject to withholding by subtracting total allowances from the gross wages.
7. Apply State Tax Rate: Utilize the state tax rate (5.8%) to determine the Idaho state income tax to be withheld. Ensure adherence to rounding rules and state regulations. Consult with payroll software providers or tax professionals for complex cases if needed.

See also – Wyoming State Income Tax

Do I Have to Pay Idaho State Income Tax?

Idaho mandates state tax return filing for residents obligated to file federal income tax returns. Part-year residents with over $2,500 in Idaho income and non-residents with earnings exceeding $2,500 from the state must file. These requirements encompass Idaho residents, part-year residents, and non-residents with Idaho-sourced income, ensuring compliance with state tax norms.

Always consult a tax professional or seek online assistance like Beem provides online to clear doubts.

How to Pay Idaho State Income Tax

Paying Idaho state income tax involves the following steps:

Electronic Payment: Access Idaho’s state tax website to make an electronic payment using the state’s online payment system. This method allows for convenient, secure, and efficient tax payments.

You can use the following methods to pay Idaho state income tax via E-pay.

• Quick Pay: Use your bank account to make occasional payments without processing fees. No account creation is necessary for this option.
• TAP (Taxpayer Access Point): Make free payments via ACH Debit from your bank account. Alternatively, pay with a debit or credit card, incurring a 3% fee. TAP allows scheduled payments and provides account history and tax due-date reminders.
• Access Idaho: Choose e-check, PayPal, or debit/credit card for payments. While e-check incurs a $5 fee, debit/credit card payments carry a 3% fee. Create a payment roster and access your account history.

Credit or Debit Card Payment: Use approved credit or debit cards to pay your Idaho state income tax. Select the appropriate payment option on the Idaho state tax website for a seamless transaction.

Check or Money Order: Prepare a check or money order payable to the Idaho State Tax Commission. Include your payment voucher Form 51, and mail it to the designated address in the payment instructions.

Direct Debit: Set up a direct debit arrangement with the Idaho State Tax Commission to authorize automatic withdrawals from your bank account. Ensure timely submission of the required authorization forms to initiate this payment method.

In-Person Payment: Visit a designated Idaho State Tax Commission office to make an in-person payment. For a smooth transaction, bring the necessary payment documentation, such as your tax forms and related identification.

Third-Party Payment Processors: Utilize authorized third-party payment processors to remit your Idaho state income tax. Follow the instructions provided by the authorized processor for a successful payment transaction. Ensure adherence to deadlines and payment guidelines to avoid penalties or late fees.

Am I a Resident for Idaho Income Tax Purposes?

Determining one’s tax residency is crucial for compliance with Idaho state income tax regulations. Understanding the criteria that establish residency status can help individuals ascertain whether they qualify as Idaho residents for tax purposes, enabling them to fulfill their tax obligations effectively.

Resident Status Rules

To be classified as an Idaho resident for tax purposes, one must meet specific criteria, including maintaining a home in Idaho for the entire tax year and spending more than 270 days in the state.

• Owning a permanent residence in Idaho.
• Residing in the state for a substantial portion of the tax year.
• Meeting the criteria for domicile in Idaho.

Part-year Resident Status Rules

Part-year residents in Idaho include individuals who either change their domicile to or from the state during the tax year or maintain a home in Idaho for more than a temporary reason.

• Change of domicile during the tax year.
• Homeownership in Idaho for a significant period.
• Notable presence in Idaho for more than a temporary stay.

Non-resident Status Rules

Non-residents in Idaho refer to individuals who do not meet the criteria for residency or part-year residency in the state. They are only required to pay taxes on income earned from Idaho sources.

Where is My Idaho State Income Tax Refund?

• Track your Idaho state tax refund online at tax.idaho.gov/refund by entering your Social Security number and expected refund amount.
• E-filers can start tracking their refunds about four business days after receiving confirmation from their e-file provider.
• Paper filers should anticipate waiting three weeks for the Tax Commission to manually input their information before tracking their refund.
• All refunds undergo fraud-detection reviews and accuracy checks, extending the processing time.
• For inquiries, contact the Tax Commission at (208) 334-7660 or toll-free at (800) 972-7660. Visit tax.idaho.gov for forms, payments, and assistance.

Why Did My Idaho State Income Tax Increase

There are three fundamental reasons for any increment in Idaho state income tax rate.

1. Changes in the state’s tax legislation, such as implementing a new flat tax rate of 5.8% on specific income thresholds, could contribute to an apparent increase in Idaho state income tax for some taxpayers.
2. Adjustments to the annual withholding formulas per the new tax laws might lead to higher tax deductions.
3. Individual income fluctuations or changes in taxable income could also influence the perceived increase in state income tax.

Idaho Sales Tax

Idaho implements a state sales tax of 6%, with certain localities adding up to 3%, leading to an average combined rate of 6.02%. While the state’s sales tax typically applies to most goods and certain services, groceries remain taxable, with a grocery income tax credit serving to counterbalance this.

Prescription drugs are exempt from sales tax. Specific resort cities like Cascade, Ketchum, and Sun Valley have additional local sales taxes that can be levied on particular purchases, such as lodging, alcohol, and restaurant food.

5 Things to Know About Idaho Income Tax

1. Idaho imposes a flat income tax rate of 5.8% on taxable income over $2,500 ($5,000 for joint filers).
2. Idaho does not tax Social Security and Railroad Retirement benefits.
3. Property tax reductions of up to $1,500 are available for eligible Idaho residents.
4. The state taxes gasoline at $0.33 per gallon.
5. Idaho does not levy estate or inheritance taxes.

Conclusion

The Idaho state income tax system emphasizes a balanced approach, featuring a flat income tax rate, specialized treatment for retirement benefits, and property tax incentives. Despite variations in local sales tax, the state maintains a moderate overall tax burden, supported by relief programs, promoting fiscal equilibrium and citizen welfare. You can file personal tax returns online on Beem to get the maximum refund.

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