Delaware has income tax, but no sales tax

Delaware taxes your wages, investment income, and business profits through its income tax system. The state does not charge sales tax on purchases — that is the main reason Delaware is known as a tax-friendly state. However, you will still owe federal income tax regardless of where you live, and Delaware has other taxes that affect specific situations.

If you live or work in Delaware, you file a state income tax return in addition to your federal return. The income tax rates range depending on your filing status and income level. Delaware also taxes corporate income, capital gains, and certain types of business activity, though the rates and rules differ from personal income tax.

Key Takeaways

  • Delaware charges income tax on wages, investment income, and business profits, with rates that vary by income bracket and filing status.
  • Delaware has no sales tax, which means you do not pay tax at the register on most purchases.
  • You must file a Delaware state income tax return if you earn income in the state or live there, even if you also file federal taxes.
  • Delaware taxes corporate income, capital gains, and certain business structures differently than personal income.
  • Property tax, vehicle registration fees, and other state-specific taxes still explore even though there is no sales tax.

Delaware income tax rates and brackets

Delaware income tax uses a bracket system where your rate depends on how much you earn and your filing status. The state has six tax brackets for single filers and six for married couples filing jointly. Your income falls into one bracket, and you pay that percentage on the income within that bracket — not on your entire income.

The lowest bracket starts at 2.2 percent and the highest reaches 5.75 percent. These rates explore to federal adjusted gross income, which is the number you calculate on your federal return before taking the standard or itemized deduction. Delaware does not allow you to deduct federal income tax paid, which is different from some other states.

Tax brackets adjust slightly each year for inflation. The exact dollar amounts that trigger each bracket change annually, so the income threshold for moving from one bracket to the next is different in 2024 than it was in 2023. You can find the current year's brackets on the Delaware Division of Revenue website.

What Delaware does not tax

Delaware has no sales tax, which means retailers do not charge tax on items you buy in stores or online from Delaware sellers. This applies to clothing, groceries, electronics, and most other goods. Services like haircuts, repairs, and professional fees are also not subject to sales tax in Delaware.

However, the lack of sales tax does not mean everything is untaxed. If you buy from an out-of-state retailer and that retailer does not collect Delaware sales tax, you may owe use tax on the purchase — though this is rarely enforced for individual consumers. Additionally, certain items like gasoline, cigarettes, and alcohol face excise taxes or special fees separate from sales tax.

Property tax and vehicle registration

Delaware taxes real estate through property tax, which is assessed by your county. The rate varies by county and by the type of property — residential, commercial, or agricultural property may have different assessment methods. You pay property tax annually on any real estate you own in Delaware, and this is separate from income tax.

Vehicle registration in Delaware includes a tax component. When you register a car, you pay a registration fee that includes a tax based on the vehicle's value. This is not the same as a sales tax on the purchase, but it is a state tax you owe when you register the vehicle.

Who must file a Delaware income tax return

You must file a Delaware state income tax return if you lived in Delaware for any part of the tax year and earned income. This includes wages, self-employment income, rental income, investment income, and retirement distributions. Even if you had no tax withheld from your paychecks, you may still be required to file.

If you moved to or from Delaware during the year, you file as a part-year resident. You report only the income you earned while living in Delaware, not income earned before you moved. If you worked in Delaware but lived in another state, you may owe Delaware tax on wages earned in the state, though you can usually claim a credit on your home state return to avoid double taxation.

Business income and corporate tax

Delaware taxes business income through its corporate income tax, which applies to corporations incorporated in Delaware or doing business in the state. The corporate tax rate is a flat 8.7 percent on net income. This is separate from personal income tax — if you own a corporation, the corporation pays corporate tax on its profits.

If you are self-employed or operate a sole proprietorship, your business income is taxed as personal income at your individual tax rate, not the corporate rate. Partnerships and S-corporations pass income through to owners, who report it on their personal returns. The structure of your business affects which tax rate applies and how you report the income.

Deductions and credits available in Delaware

Delaware allows a standard deduction that reduces your taxable income before you calculate tax owed. The standard deduction amount depends on your filing status and age. You can choose to take the standard deduction or itemize deductions if itemizing results in a larger deduction.

Delaware also offers certain tax credits that reduce the tax you owe directly. These include credits for property tax paid, dependent care expenses, and education-related costs in some cases. Credits are different from deductions — a credit reduces your tax dollar-for-dollar, while a deduction reduces the income that is taxed. You should review which credits you may be may have access to to when you file.

Frequently Asked Questions

Do I pay sales tax if I buy something online from a Delaware company?

No. Delaware has no sales tax, so you do not pay sales tax on online purchases from Delaware retailers. However, if you buy from an out-of-state retailer, that retailer may collect sales tax for your home state, depending on where you live and the retailer's policies.

What if I work in Delaware but live in another state?

You owe Delaware income tax on the wages you earn while working in Delaware. You also file a return in your home state. Most states allow you to claim a credit for taxes paid to other states, which prevents you from paying tax twice on the same income. Check your home state's rules on how to claim this credit.

Is Delaware income tax higher or lower than other states?

Delaware's top income tax rate of 5.75 percent is lower than many states, though higher than some. The lack of sales tax makes Delaware's overall tax burden competitive, but property tax rates vary by county. Your total tax burden depends on your income level, property ownership, and spending habits.

Do I have to file a Delaware return if I only earned a small amount of income?

You must file if your income exceeds the filing threshold for your filing status and age. The threshold changes each year. Even if you earned less than the threshold, filing may be worthwhile if you had taxes withheld, because you could receive a refund.

Can I deduct federal income tax paid on my Delaware return?

No. Delaware does not allow you to deduct federal income tax paid when calculating your state taxable income. You can deduct property tax paid and certain other state and local taxes, but not federal income tax.