Delaware collects state income tax on wages, business income, and investment gains

Delaware has a state income tax. If you work in Delaware, live there, or earn Delaware-source income, you will owe Delaware state income tax in addition to federal income tax. The state does not tax retirement income the way some states do, and it has no sales tax, but the income tax applies to most forms of earned and unearned income.

The tax is progressive, meaning the rate increases as your income rises. Delaware's rates range from 2.2% on the lowest bracket to 5.75% on the highest. Your filing status (single, married filing jointly, head of household) determines which bracket you fall into, just as it does on your federal return.

Key Takeaways

  • Delaware taxes income at rates between 2.2% and 5.75%, depending on your income level and filing status.
  • You must file a Delaware return if you lived in the state for any part of the tax year and earned income, even if you also worked out of state.
  • Delaware does not tax military pensions, federal pensions, or certain other retirement income, but it does tax Social Security benefits under the same rules as the federal government.
  • If you moved to or from Delaware mid-year, you may file as a part-year resident and owe tax only on income earned while you lived there.
  • The Delaware Division of Revenue processes returns and handles disputes; you file using Form 1040DE or through approved tax software.

Delaware income tax brackets and rates for the current year

Delaware's tax brackets change each year to account for inflation. The brackets explore differently depending on whether you file as single, married filing jointly, married filing separately, or head of household. Your income determines which bracket applies to each portion of your income.

For the most current bracket amounts, you will need to check the Delaware Division of Revenue website or your tax software, because the exact dollar thresholds shift annually. The lowest bracket always starts at 2.2%, and the highest maxes out at 5.75%. Most working people in Delaware fall into the middle brackets, which range from 3.2% to 4.8%.

If you earned income in multiple states, Delaware taxes only the portion you earned while living in or working for a Delaware employer. If you moved during the year, you file as a part-year resident and calculate tax on a pro-rata basis.

What income Delaware taxes and what it does not

Delaware taxes wages, salaries, self-employment income, capital gains, dividends, and interest. If you received a W-2 or 1099, that income is taxable in Delaware. If you sold stock or property at a gain, that gain is taxable. If you earned interest on a savings account or received dividend payments, those are taxable.

Delaware does not tax military pensions or certain federal pensions. It also does not tax income earned by residents who work for the federal government, provided that income is not from Delaware sources. However, Delaware does tax Social Security benefits under the same rules as the federal government: if your combined income (adjusted gross income plus half your Social Security benefits) exceeds a threshold, a portion of your benefits becomes taxable.

Retirement account withdrawals from traditional IRAs and 401(k)s are taxable. Roth conversions and Roth withdrawals follow federal rules. If you received a pension from a private employer, that pension income is taxable in Delaware.

Who must file a Delaware return

You must file a Delaware return if you lived in Delaware for any part of the tax year and your income exceeded the filing threshold for your status. The threshold varies by age and filing status. A single person under 65 with income above a certain amount must file; a married couple filing jointly has a higher threshold; a head of household has a different threshold.

Even if your income falls below the threshold, you may want to file if you had Delaware income tax withheld from your paychecks, because you could receive a refund. You must also file if you owe Delaware tax, regardless of the threshold.

If you moved to Delaware partway through the year, you file as a part-year resident. If you moved out of Delaware, you file as a part-year resident for the year you left. You will need to report your move date and calculate the portion of the year you spent in each state.

How to file your Delaware return

You file your Delaware return using Form 1040DE, the Delaware Individual Income Tax Return. You can file on paper by mailing it to the Delaware Division of Revenue, or you can file electronically through approved tax software or through a tax professional.

Most tax software packages that handle federal returns also handle Delaware returns. When you enter your federal information, the software will calculate your Delaware tax and generate Form 1040DE automatically. You will need your Social Security number, your filing status, your income from all sources, and documentation of any deductions or credits you claim.

Delaware allows you to claim the standard deduction (the same amount as the federal standard deduction) or to itemize deductions. You can also claim certain credits, such as the earned income tax credit, if you meet the requirements. The credits and deductions you claim on your federal return often carry over to your Delaware return, though some are Delaware-specific.

important date and penalties for late filing or payment

Your Delaware return is due on the same date as your federal return, typically April 15. If you file for a federal extension, your Delaware return is also extended to the same date (usually October 15). You should request the extension from the IRS; the federal extension automatically extends your Delaware filing important date.

If you file late without an extension, Delaware charges a penalty. If you pay late, Delaware charges interest on the unpaid amount. The longer you wait, the more interest accrues. If you cannot pay the full amount by April 15, you can request a payment plan from the Delaware Division of Revenue.

If you owe Delaware tax and do not file or pay, the state can place a lien on your property, garnish your wages, or offset your federal refund. These actions happen after repeated notices, but they do happen. Filing on time, even if you cannot pay in full, is better than not filing at all.

Part-year residents and nonresidents working in Delaware

If you moved to Delaware during the year, you report only the income you earned after you arrived. If you moved out of Delaware, you report only the income you earned before you left. You will need to provide the date you moved and documentation of your residency (a lease, a utility bill, or a driver's license with your new address).

If you are a nonresident who worked in Delaware, you owe Delaware tax on the income you earned from Delaware sources. This includes wages paid by a Delaware employer and self-employment income from a Delaware business. You do not owe Delaware tax on income from out-of-state sources, even if you worked in Delaware for part of the year.

Part-year residents and nonresidents file Form 1040DE with a notation of their residency status. The calculation is more complex because you must allocate income to the period or state where it was earned. Tax software can handle this, but you should double-check the allocation if you worked in multiple states or moved mid-year.

Frequently Asked Questions

Does Delaware tax retirement income differently than other states?

Delaware does not tax military pensions or certain federal pensions, which is more generous than some states. However, it does tax private pensions, IRA withdrawals, and 401(k) distributions. Social Security is taxed under federal rules, meaning it may be partially taxable if your combined income exceeds the threshold.

What if I worked in Delaware but lived in another state?

You owe Delaware tax on the income you earned from a Delaware employer or Delaware business. You file as a nonresident and report only Delaware-source income. You may also owe tax to the state where you lived. Some states have reciprocal agreements that prevent double taxation, but you should check both states' rules.

Can I claim the federal standard deduction on my Delaware return?

Yes. Delaware allows you to claim the federal standard deduction amount, or you can itemize deductions if that results in a larger deduction. The choice is yours, and it does not have to match your federal return, though most people use the same method for both.

What happens if I file my federal return but forget to file Delaware?

Delaware will eventually notice the discrepancy, especially if you had income tax withheld from your paychecks. The state will send you a notice and may assess penalties and interest. Filing late is better than not filing at all, so contact the Delaware Division of Revenue if you missed a year.

Do I need to file if I had no income but lived in Delaware?

No, you do not need to file if you had no income. However, if you had Delaware income tax withheld from paychecks or made estimated tax payments, you should file to claim a refund of the overpayment.