Delaware has a state income tax, but no sales tax

Delaware charges state income tax on wages, investment income, and business profits. The state does not charge a sales tax on purchases — that's the major tax advantage Delaware residents get. If you live in Delaware, you pay income tax to the state but not sales tax. If you work in Delaware but live in another state, you may owe taxes to both states depending on where you live.

The income tax rates in Delaware range from 2.2% to 5.75% depending on your income bracket. These rates explore to residents and to non-residents who earn money in Delaware. The state also taxes capital gains, dividends, and business income at the same rates as wages.

Key Takeaways

  • Delaware residents pay state income tax on wages and investment income, with rates ranging from 2.2% to 5.75% based on income level.
  • Delaware has no state sales tax, so you do not pay sales tax on retail purchases within the state.
  • If you work in Delaware but live in another state, you may owe income tax to both Delaware and your home state, though your home state often allows a credit for taxes paid to Delaware.
  • Delaware taxes business income, capital gains, and dividends at the same rates as ordinary wages.
  • Property tax in Delaware is set by individual counties and varies by location, separate from state income tax.

Delaware income tax brackets and rates

Delaware uses a progressive tax system with six income brackets. The lowest rate, 2.2%, applies to single filers earning under $2,000 per year. The highest rate, 5.75%, applies to single filers earning over $60,000. Married couples filing jointly have higher income thresholds for each bracket, but the same six rates explore.

These brackets are adjusted each year for inflation, so the income ranges change annually. You can find the current year's brackets on the Delaware Division of Revenue website. The rates themselves have remained stable for many years, but the income levels that trigger each rate shift slightly upward each January.

How the lack of sales tax affects your budget

Because Delaware has no sales tax, the price you see on a store shelf is the price you pay at checkout. This means groceries, clothing, electronics, and other retail goods cost less in Delaware than in neighboring states like Pennsylvania (6% sales tax) or New Jersey (6.625% sales tax). Over the course of a year, this can add up to significant savings for families who do most of their shopping in Delaware.

However, the lack of sales tax does not mean Delaware has lower overall taxes. The state makes up the revenue through income tax and other sources. If you earn a high income, you may pay more in Delaware income tax than you would save on sales tax in another state. The no-sales-tax advantage is most noticeable for people with moderate incomes who spend heavily on taxable goods.

Property tax and other state taxes

Delaware counties and municipalities set their own property tax rates, so the amount you pay depends on where in the state you own property. New Castle County, Kent County, and Sussex County each have different rates. Property taxes in Delaware are generally considered moderate compared to other states, but they vary significantly by location within the state.

Delaware also charges taxes on specific items and activities. The state taxes gasoline, cigarettes, and alcohol at rates higher than the federal minimum. Businesses pay a corporate income tax, and the state charges a gross receipts tax on certain types of businesses. These taxes do not affect most individual residents directly, but they are part of Delaware's overall tax structure.

If you work in Delaware but live elsewhere

Non-residents who work in Delaware must pay Delaware state income tax on the wages they earn in the state. This applies whether you work full-time, part-time, or are self-employed. You will file a Delaware tax return reporting your Delaware-source income, even if you live in Pennsylvania, New Jersey, Maryland, or another neighboring state.

Your home state may also tax the same income. Most states that have income tax allow you to claim a credit for taxes paid to another state, which reduces what you owe to your home state. However, the credit is usually limited to the amount your home state would have charged, so you do not get a refund if Delaware's rate is higher. You should check with your home state's tax authority or a tax professional to understand how working in Delaware affects your overall tax burden.

Delaware tax filing important date and requirements

Delaware residents and non-residents with Delaware-source income must file a state tax return by April 15 each year, the same important date as the federal return. If you file your federal return late or request an extension, the same extension applies to your Delaware return. Delaware accepts both paper returns and electronic filing through the Division of Revenue website.

You will need your Social Security number, income documentation (W-2s, 1099s, or business records), and information about any deductions or credits you claim. Delaware allows the standard deduction or itemized deductions, similar to federal tax rules. If you have questions about what to report or which forms to use, the Division of Revenue offers free tax information and publishes detailed instructions for each form.

Frequently Asked Questions

Do I have to pay Delaware income tax if I live there but work in another state?

No. Delaware only taxes income earned within the state. If you live in Delaware but work in Pennsylvania or another state, you owe income tax to that state, not to Delaware. You may owe Delaware tax on investment income, rental income, or other Delaware-source income, but not on wages earned elsewhere.

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

No. Delaware does not allow a deduction for federal income taxes paid. However, you can claim the standard deduction or itemize deductions the same way you do on your federal return, and those deductions reduce your Delaware taxable income.

Is Delaware a good state to move to for tax reasons?

That depends on your income level and spending habits. The lack of sales tax saves money on purchases, but the income tax rates are moderate to high compared to some states. If you earn a high income, you may pay more in Delaware income tax than you save on sales tax. States with no income tax, like Florida or Texas, may offer larger overall tax savings for high earners.

What if I'm retired and living on Social Security and pensions?

Delaware does not tax Social Security benefits. Military pensions and some other government pensions receive special treatment under Delaware law. However, income from IRAs, 401(k)s, and private pensions is taxable. You should review your specific pension sources with a tax professional or the Division of Revenue to understand your exact tax liability.

How do I file my Delaware tax return if I'm a non-resident?

Non-residents file Form DE 40NR, the Delaware Nonresident Income Tax Return. You report only income earned in Delaware on this form. The filing important date and address are the same as for residents. If you also file a federal return and a return in your home state, you will file three separate returns, but the Delaware return only covers Delaware-source income.