PayoutTaxState income tax on prop firm payouts
Updated October 26, 2026 ยท For the 2026 tax year
Federal tax is only part of the bill. Most states also tax your prop firm payouts as ordinary income, on top of your day-job wages. Here's how it works for 2026, state by state, from each state's own revenue department.
Payouts are taxed where you live
State income tax generally follows where you live, not where the prop firm is based. A trader in Ohio funded by a firm in Florida is taxed by Ohio. Your payouts minus your trading costs are added to your other income, and the state taxes the total by its own rules.
States with no income tax on wages
These 9 states don't tax payout income for 2026: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. If you live in one of them, your set-aside is federal income tax plus self-employment tax only.
Flat-rate states: 2026 rates
In these states one rate applies to taxable income, so the tax on a payout is close to that rate times the payout (less any deduction your day-job wages haven't already used up). Rates and deductions are for the 2026 tax year, from each state's revenue department:
| State | 2026 rate | Deduction used in the estimate |
|---|---|---|
| Arizona | 2.5% | None used * |
| Colorado | 4.4% | $16,100 single / $32,200 joint |
| Georgia | 4.99% | $15,000 single / $30,000 joint |
| Iowa | 3.8% | $16,100 single / $32,200 joint |
| Idaho | 5.3% | None used * |
| Illinois | 4.95% | $2,925 single / $5,850 joint |
| Indiana | 2.95% | $1,000 single / $2,000 joint |
| Kentucky | 3.5% | $3,360 single / $3,360 joint * |
| Louisiana | 3% | $12,838 single / $25,676 joint |
| Michigan | 4.25% | $5,900 single / $11,800 joint |
| Mississippi | 4% | $8,300 single / $16,600 joint * |
| North Carolina | 3.99% | $12,750 single / $25,500 joint |
| Pennsylvania | 3.07% | None used |
* We couldn't verify this state's 2026 deduction for every filing status, so the estimate uses the conservative figure shown (it may run slightly high). Rates link to the state revenue department source.
A few of these have details the table can't show. For example, Colorado's rate can be cut after the fact by its TABOR rule, and Pennsylvania has no standard deduction at all. The PayoutTax calculator applies the rate and deduction shown and notes anything we couldn't verify.
Graduated-rate states
States like California, New York and New Jersey tax income in brackets, like the federal system. Your payouts land in your top state bracket, on top of your wages. Until we've verified a state's 2026 brackets from its revenue department, the calculator asks for your top state rate rather than guessing. Find it in your state's 2026 estimated-tax instructions, or ask your CPA.
State estimated payments
Most states with an income tax also expect estimated payments during the year, with their own forms and due dates. The federal quarterly amounts PayoutTax shows cover federal tax only, so check your state's rules too.
Local taxes
Some cities, counties and school districts tax income too (for example in Pennsylvania, Ohio, Michigan, Indiana and Kentucky). These aren't included in the estimate.
Sources
- Each rate in the table links to the state revenue department page it comes from.
- The 9 no-income-tax states are listed in our 2026 tax tables (tax/2026.json), with sources.
General information, not tax advice. This guide explains common rules for US funded traders; your situation may differ. It isn't a substitute for a licensed CPA or IRS enrolled agent, so review your own numbers with one before you file or pay.