This study investigates whether household indebtedness influences the macroeconomic effects of U.S. tax changes. By applying a state-dependent local projection method to the exogenous tax shock series, we find that a tax cut is more effective in stimulating output when the economy is characterized by higher household indebtedness. The household debt-dependent tax policy is primarily driven by (i) the response of private consumption, not private investment; (ii) changes in personal income tax, not corporate income tax, suggesting the relevance of a higher MPC of constrained households in understanding the documented state dependence. In response to a tax cut, labor supply also increases more during a high-debt state, which is consistent with the micro-level evidence on the labor supply of constrained households, thereby contributing to higher tax multipliers. Our findings are robust to a battery of sensitivity checks, especially controlling for the additional states of the economy considered in the literature.