Delaware has a state income tax, but it is lower than most states and does not explore to retirement income

Yes, Delaware charges state income tax on wages and salary. The tax rate ranges from 2.2% to 5.75% depending on your income bracket, making it one of the lowest in the country. However, Delaware does not tax retirement income — that includes Social Security, pensions, 401(k) withdrawals, and IRA distributions — which is a significant advantage if you are retired or approaching retirement.

Delaware also does not have a sales tax or capital gains tax, which offsets the income tax burden compared to states that charge all three. If you work in Delaware or live there, you will owe state income tax on your wages, but the rate structure is progressive, meaning higher earners pay a higher percentage.

Key Takeaways

  • Delaware income tax rates range from 2.2% to 5.75% depending on your income bracket, with the lowest rates explore to the smallest earners.
  • Retirement income including Social Security, pensions, 401(k) withdrawals, and IRA distributions is not subject to Delaware state income tax.
  • Delaware has no sales tax and no capital gains tax, which means your overall tax burden may be lower than in neighboring states.
  • If you work in Delaware but live in another state, you typically owe income tax to your state of residence, not Delaware.

Delaware income tax brackets and rates for 2024

Delaware uses six tax brackets for single filers and six for married couples filing jointly. For single filers in 2024, the brackets start at 2.2% on income up to $2,000, then increase in steps to 5.75% on income over $60,000. Married couples filing jointly have higher income thresholds before moving to the next bracket, so a married couple pays 2.2% on income up to $3,000, and the top rate of 5.75% applies to income over $100,000.

The tax is withheld from your paycheck if you are employed, so you do not pay it in one lump sum. Your employer uses your W-4 form to calculate how much to withhold each pay period. If you are self-employed, you pay estimated taxes quarterly to the Delaware Division of Revenue.

What Delaware does not tax

Delaware's biggest tax advantage is the exclusion of retirement income. If you receive Social Security, a pension from a former employer, distributions from a 401(k) or traditional IRA, or withdrawals from a Roth IRA, none of that counts as taxable income in Delaware. This rule applies regardless of your age or how much retirement income you receive.

Delaware also does not tax capital gains — the profit you make when you sell stock, real estate, or other investments at a higher price than you paid. Many states tax capital gains as ordinary income or at a separate rate, so this is another significant advantage. Additionally, Delaware has no sales tax, which means you do not pay tax on purchases of goods or services.

Who pays Delaware income tax

You owe Delaware income tax if you are a resident of the state or if you work in Delaware and earn wages there. Residency is determined by where you maintain a permanent home and where you spend most of your time. If you move to Delaware during the year, you owe tax only on the income you earn after you become a resident.

If you work in Delaware but live in another state, your state of residence typically has the right to tax your wages first. You may owe income tax to both states, but most states offer a credit for taxes paid to another state to prevent double taxation. Check with your state's tax authority to understand how they handle income earned in other states.

How to file Delaware state income tax

Delaware residents file their state income tax return using Form 1040-DE, which is the state's individual income tax return form. You can file online through the Delaware Division of Revenue website, by mail, or through a tax preparation service. The important date is the same as the federal important date — usually April 15 — and you can request an extension if you need more time.

If you are employed, your employer withholds tax from your paycheck, and you may receive a refund if too much was withheld. If you are self-employed, you report your income and expenses on Schedule C and pay self-employment tax in addition to state income tax. Keep records of all income and deductible expenses for at least three years in case of an audit.

Delaware income tax compared to neighboring states

Delaware's top income tax rate of 5.75% is lower than Pennsylvania (3.07%), New Jersey (10.75%), and Maryland (8.75%). However, Pennsylvania has no sales tax like Delaware, while New Jersey and Maryland both have sales taxes. When you combine income tax, sales tax, and capital gains tax, Delaware's overall tax burden is competitive, especially for retirees who benefit from the retirement income exclusion.

If you are considering moving to Delaware for tax reasons, factor in property taxes as well. Delaware property taxes average around 0.57% of home value, which is relatively low compared to the national average. The combination of low income tax, no sales tax, and moderate property tax makes Delaware attractive to some people, though housing costs and other living expenses vary by location within the state.

Frequently Asked Questions

Do I have to pay Delaware income tax if I am retired?

No, not on retirement income. Social Security, pensions, 401(k) withdrawals, and IRA distributions are all exempt from Delaware state income tax. If you have other income such as wages from part-time work or rental income, you would owe tax on that, but your retirement payments are protected.

What if I moved to Delaware in the middle of the year?

You owe Delaware income tax only on the income you earned after you became a resident. When you file, you report your residency start date, and your tax is calculated based on the portion of the year you were a Delaware resident. Your previous state may also tax the income you earned while living there.

Does Delaware tax investment income like dividends and interest?

Yes, dividends and interest income are taxed as ordinary income at your regular tax rate. Delaware does not have a separate capital gains tax, but it does tax the interest you earn on savings accounts, bonds, and other investments. may have access to dividends from stocks may receive preferential treatment under federal tax law, but Delaware taxes them at your regular state rate.

Can I deduct federal income tax from my Delaware state taxes?

No, Delaware does not allow a deduction for federal income tax paid. You can deduct state and local taxes (SALT) on your federal return, but not the other way around. Delaware does allow deductions for charitable contributions, mortgage interest, and other standard deductions similar to the federal system.

What happens if I do not file Delaware income tax?

The Delaware Division of Revenue can assess penalties and interest on unpaid taxes. If you owe a small amount, the penalty starts at 5% of the unpaid tax. Interest accrues daily at a rate set by the state. If you cannot pay in full, you can request a payment plan or an extension, which is better than not filing at all.