Is There State Income Tax in Delaware?

Delaware’s tax landscape often sparks questions, particularly concerning state income tax. This article will clarify Delaware’s state income tax system, detailing its application to both individuals and businesses operating within the state.

Understanding Delaware’s State Income Tax

Delaware’s state income tax applies to both individuals and businesses. This tax is a significant component of the state’s revenue system. The individual income tax system in Delaware is progressive.

The state’s income tax applies to residents on all their income, regardless of where it was earned. Non-residents are also subject to Delaware income tax, but only on income derived from sources within the state.

How Individual Income is Taxed in Delaware

Individual income in Delaware is taxed through a progressive rate structure, featuring seven distinct tax brackets. For the 2025 tax year, rates begin at 0% for the lowest income tier and climb to a maximum of 6.6% for taxable income exceeding $60,000. For instance, income from $0 to $2,000 is taxed at 0%, while amounts between $2,000 and $5,000 are taxed at 2.2%. Subsequent brackets include 3.9% for income up to $10,000, 4.8% up to $20,000, 5.2% up to $25,000, and 5.55% for income up to $60,000.

Wages, salaries, interest, dividends, business income, and capital gains are subject to this individual income tax. Social Security benefits are entirely exempt from Delaware’s income tax. Residents aged 60 and older can exclude up to $12,500 of eligible pension or retirement income.

For the 2025 tax year, the standard deduction is $5,700 for single filers and $11,400 for married individuals filing jointly. While Delaware does not allow personal exemptions, it provides personal income tax credits. These credits amount to $110 for single filers, $220 for married couples filing jointly, and an additional $110 for each qualifying dependent. An extra $110 credit is available for individuals aged 60 or older.

Delaware also offers several tax credits that can further reduce an individual’s tax liability.
Taxes paid to another state on income also taxable in Delaware.
A credit for active firefighters or rescue squad members.
A credit equal to 50% of the federal child and dependent care credit.
A credit based on the federal Earned Income Credit (4.5% refundable or 20% nonrefundable).
Individuals residing in Delaware are considered such if they are domiciled in the state for any part of the taxable year or maintain an abode and spend more than 183 days within the state. Non-residents with Delaware-sourced income must file a return, and part-year residents have options for filing as a resident or non-resident.

How Business Income is Taxed in Delaware

The Delaware Corporate Income Tax applies to domestic and foreign corporations doing business within the state. This tax is levied at a flat rate of 8.7% on federal taxable income allocated to Delaware. There is no minimum corporate income tax requirement in Delaware.

Beyond the corporate income tax, Delaware also imposes a Gross Receipts Tax on businesses. This tax is applied to a company’s total gross revenues from goods sold or services rendered within the state, not on its net income. The rates for the Gross Receipts Tax vary depending on the specific business activity, ranging from 0.0945% to 0.7468%. Filing is on a monthly or quarterly basis depending on the volume of receipts.

Pass-through entities, such as Limited Liability Companies (LLCs), partnerships, and S-corporations, are treated differently for income tax purposes. Profits and losses flow directly through to the individual owners, who then report and pay taxes on this income on their personal tax returns.

All corporations incorporated in Delaware, regardless of whether they conduct business or earn income in the state, must pay an annual Franchise Tax. This is a fee for the privilege of maintaining corporate status in Delaware, rather than an income tax. The amount of this tax is calculated based on factors such as the number of authorized shares or the assumed par value capital.

The minimum corporate franchise tax is $175 under the authorized shares method and $400 under the assumed par value capital method, with a maximum tax of $200,000, or $250,000 for large corporate filers. LLCs and limited partnerships pay a flat annual fee of $300. Corporations are required to file and pay this tax by March 1st each year, while LLCs are due by June 1st.