Delaware has a state income tax, but the rate is lower than most states and the tax brackets are narrower

Delaware taxes income, but not in the way many other states do. The state uses a progressive tax system with rates that range from 2.2% to 5.75% depending on your income level. Unlike some states that tax all income equally, Delaware's brackets mean you pay a higher percentage only on income above certain thresholds.

Delaware also does not tax Social Security benefits, which can matter if you are retired. The state does tax retirement income from pensions and 401(k) withdrawals, though some types of retirement income receive partial exemptions depending on your age and total income.

If you work in Delaware but live in another state, or live in Delaware but work elsewhere, the rules depend on where you earned the money and where you claim residency. Delaware taxes residents on all income, regardless of where it was earned. Non-residents pay Delaware tax only on income earned within the state.

Key Takeaways

  • Delaware's income tax rates range from 2.2% to 5.75%, with rates increasing as your income rises.
  • Social Security benefits are not taxed in Delaware, but pension and 401(k) withdrawals are taxed as regular income.
  • Delaware residents must pay state tax on all income earned anywhere; non-residents pay tax only on Delaware-source income.
  • Delaware has no sales tax and no tax on capital gains from the sale of stocks or mutual funds, which is unusual among states.
  • Tax filing important date in Delaware follow the federal schedule: returns are due April 15 unless that date falls on a weekend or holiday.

How Delaware's income tax brackets work

Delaware uses tax brackets that change each year based on inflation. For the 2024 tax year, the brackets begin at 2.2% on the first portion of taxable income and increase in steps. The exact dollar amounts where each bracket begins shift annually, so you need to check the current year's brackets when you file.

The way brackets work: you do not pay 5.75% on your entire income if you reach the top bracket. You pay 2.2% on the first chunk, then 3.9% on the next chunk, then 4.8%, and so on. Only the income that falls into the highest bracket gets taxed at 5.75%. This is why the effective rate (what you actually pay as a percentage of total income) is lower than the top rate.

Delaware publishes updated bracket tables each January on the Delaware Division of Revenue website. You can also find them on tax software when you enter your state as Delaware. If you file a federal return, you will already have calculated your federal taxable income, which is the starting point for Delaware tax as well.

What income Delaware taxes and what it does not

Delaware taxes wages, salaries, self-employment income, interest, dividends, and retirement account withdrawals. If you receive a W-2 from an employer, that income is taxed. If you receive a 1099 for freelance or contract work, that income is taxed. If you withdraw money from a traditional IRA or 401(k), that withdrawal is taxed as income.

Delaware does not tax Social Security benefits, even if you have substantial other income. This is one of the few states with this rule. Delaware also does not tax capital gains — the profit you make when you sell stocks, bonds, mutual funds, or investment property. This means if you buy a stock for $1,000 and sell it for $2,000, the $1,000 gain is not subject to Delaware income tax.

Retirement income receives some special treatment. If you are 60 or older, you may be able to exclude some or all of your pension income from Delaware taxation, depending on your total income. The same applies to distributions from certain retirement accounts. You will need to check the current rules or speak with a tax preparer, because the income limits change and the rules are specific about which types of retirement income may have access to.

Delaware's lack of sales tax and what that means

Delaware has no state sales tax and no local sales tax. This is one of the most distinctive features of Delaware's tax system. If you buy something in a store in Delaware, you pay no sales tax on the purchase. If you buy something online and have it shipped to a Delaware address, you typically pay no sales tax (though federal law and the laws of other states are changing this landscape).

Because Delaware has no sales tax, the state relies more heavily on income tax and corporate tax revenue than states that have both. This is one reason Delaware's income tax exists and why the rates, while lower than some states, are not negligible. The trade-off is that you save money on purchases but pay more in income tax than you might in a state with a sales tax and lower income tax.

If you live in Delaware and work in a neighboring state like Pennsylvania or Maryland, you may owe sales tax on purchases made in those states. Your home state does not tax the sale, but the state where the sale occurs does. This matters most if you do significant shopping across state lines.

How to file Delaware state income tax

Delaware uses federal taxable income as the starting point. You calculate your federal return first — either on paper using IRS forms or through tax software — and then use that information to file your Delaware return. Delaware's return is shorter than the federal return because the state does not have as many deductions and credits.

You can file on paper by mailing Form DE 1040 (the Delaware individual income tax return) to the Delaware Division of Revenue, or you can file electronically. Electronic filing is faster and reduces errors. Many tax software programs include Delaware state filing, either for free or for a small additional fee beyond the federal filing cost.

The important date to file is April 15 of the year following the tax year, the same as federal. If April 15 falls on a weekend or holiday, the important date moves to the next business day. If you cannot file by the important date, you can request an extension, which gives you until October 15 to file. An extension to file is not an extension to pay — if you owe tax, you should pay by April 15 to avoid penalties and interest, even if you have not filed yet.

Who must file a Delaware return

You must file a Delaware return if you are a Delaware resident and your income exceeds the filing threshold for your filing status. The threshold changes each year. For 2024, a single person with income over roughly $13,000 must file, but the exact amount depends on your age and filing status. Check the Division of Revenue website or your tax software for the current year's threshold.

Non-residents must file if they earned income in Delaware that exceeds the threshold. If you worked in Delaware for part of the year, you report only the income earned in Delaware on your Delaware return. You will also file a return in your home state for income earned there.

Even if you do not have to file, you may want to if you had taxes withheld from your paychecks or if you are may have access to to any credits. Filing allows you to claim a refund of overpaid tax.

Tax withholding and estimated payments

If you are an employee, your employer withholds Delaware income tax from your paycheck based on the W-4 form you complete. The withholding is an estimate of what you will owe. If too much is withheld, you get a refund when you file. If too little is withheld, you owe when you file.

If you are self-employed or have income that is not subject to withholding, you may need to make estimated tax payments to Delaware quarterly. These are payments you make directly to the state four times a year (roughly in April, June, September, and January) to cover the tax you expect to owe. If you do not make estimated payments and owe a large amount when you file, you may owe penalties in addition to the tax itself.

You can adjust your withholding at any time by submitting a new W-4 to your employer. If you expect a big change in your income or life situation, it is worth reviewing your withholding to avoid a large bill or refund at tax time.

Frequently Asked Questions

Does Delaware tax retirement income differently than other income?

Delaware does not tax Social Security benefits at all. Pension income and distributions from 401(k)s and IRAs are taxed as regular income, but if you are 60 or older, you may be able to exclude some or all of your pension income depending on your total income. The rules are specific, so check the Division of Revenue website or consult a tax preparer for your situation.

If I live in Delaware but work in another state, do I pay Delaware tax?

Yes. Delaware taxes residents on all income earned anywhere. You will file a Delaware return reporting your out-of-state income. You will also file a return in the state where you worked. Most states offer a credit for taxes paid to other states to prevent double taxation, so you typically do not pay the full rate in both places.

What is Delaware's sales tax rate?

Delaware has no state or local sales tax. This is one of the few states with no sales tax at all. You pay no sales tax on purchases made in Delaware, which is why many people shop there. However, if you buy something online and have it shipped to Delaware, some sellers may still charge sales tax based on their own state's rules.

Can I file my Delaware return electronically?

Yes. You can file electronically through tax software or through the Division of Revenue's online system. Electronic filing is faster than mailing a paper return and reduces the chance of errors. Many free and paid tax software options include Delaware state filing.

What happens if I do not file a Delaware return when I am supposed to?

If you owe tax and do not file, you will owe penalties and interest on top of the tax itself. The longer you wait, the more you owe. If you cannot file by the important date, request an extension by April 15. If you do not owe tax, there is no penalty for not filing, but you may miss out on a refund if taxes were withheld.