Overall Tax Burden by State

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Overall Tax Burden by State

The federal income tax, computed on the Internal Revenue Service (IRS) Form 1040 in April of each calendar year, is one of the most significant tax bills that most Americans face. Your state or municipality is also responsible for three primary taxes: state income taxes, sales taxes, and property taxes. Each sort of tax is computed differently; criteria such as your income level, marital status, and county of residency influence your tax rates.

It’s hard to make simple, apples-to-apples comparisons of how much overall tax you’ll pay if you live in one state versus another. You can’t just total up the average rates in each state and rank them from lowest to highest since you pay state income tax on what you earn, sales tax on what you spend, and property tax on the value of any real estate you own.

If, on the other hand, you’re attempting to decide where to reside or where to move your company and taxes are a consideration, the tables below may provide a large picture to serve as a starting point for extra study on how taxes in each state might effect your individual financial position.

Key Takeaways

  • Aside from the federal income tax, your state or municipality imposes three additional primary taxes: state income taxes, sales taxes, and property taxes.
  • You can’t just total up the average rates in each state and rank them from lowest to highest since you pay state income tax on what you earn, sales tax on what you spend, and property tax on the value of any real estate you own.
  • However, there are significant discrepancies in state tax loads at the high and low ends, which might have a significant influence on your capacity to make ends meet in the short term and save for the long run.

Income Tax

State income tax rates are only straightforward in the few states that either do not impose income tax or apply a single rate regardless of income. In other states, your income tax rate is determined by your income bracket, and each state has its own brackets at various income levels. According to our analysis, most taxpayers in the lower and middle classes pay the highest rate in certain jurisdictions; in others, you must earn more than $1 million to pay the highest rate.

  Flat Tax Definition

The tables below simply show the income tax rates you’d pay in each state if you earned the median income in 2022, as computed by the United States Census Bureau. Your state tax bill will also be affected by any exemptions, deductions, or credits that you qualify for, since states vary in terms of what tax advantages they provide and who qualifies.

The highest marginal individual income tax rates for each of the 50 states and the District of Columbia are listed here.

Sales Tax

The exact sales tax rate you’ll pay varies on the city you reside in, making determining which states have the highest sales tax burden difficult. Nonetheless, towns construct their sales tax rates on top of state sales tax rates, so knowing the basic rate you’ll pay to make purchases anywhere in the state is helpful.

The graphic below shows the sales tax loads and average local sales tax rates for each state and the District of Columbia.

Property Tax

If you want to buy a house, you should research the property tax rates in the areas where you intend to live. However, property taxes are set at the municipal level rather than the state level. In certain regions, while living in the same geographical area with comparable facilities and quality of life, you may cross the street into a different town and pay a radically different cost.

Homeowner exemptions, the frequency with which property values are evaluated, and yearly restrictions on property tax increases, such as California’s 1% annual cap under Proposition 13, all have an impact on property taxes.

Furthermore, in some jurisdictions, homeowners’ exemptions are exclusively accessible to taxpayers who earn less than a certain income level and/or are senior citizens; in others, these exemptions are open to any owner who occupies the property as their main residence.

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Other Factors

These numbers do not take into account the considerable amount of taxes that many persons pay to states outside than their home state. When we travel or generate revenue in another state, we must pay these taxes.

Another issue to consider is that although one state may have greater taxes than another, you may be able to make more in the higher-taxed state. The issue is whether you will earn enough more to compensate for, or perhaps surpass, the expense of the increased tax burden.

Also, although you may be lured to a state with no income tax or no sales tax at first, consider the overall picture: states sometimes compensate for lower taxes in one area by greater taxes in another. Government-provided services must be financed in some way.

Are Low Tax Rates Always a Good Thing?

While increased taxes are inconvenient, you could believe that they indicate you’re receiving more and better public services for your money: smoother roads, better public schools, and more attractive parks.

However, just because government officials have a large amount of tax money at their disposal does not indicate that they are spending it properly. Similarly, low tax rates may not always imply a lack of public services. Politicians in such areas may be spending tax resources wisely, and they may have outsourced some functions that the government traditionally delivers to the private sector.

As with any other purchase, you must do more study to determine what you are receiving for your money, since a higher price (or, in this example, a greater tax bill) does not necessarily imply superior quality, and a lower price does not always imply worse quality.

Which States Have the Highest and Lowest Income Taxes?

California (13.30%), Hawaii (11.00%), New York (10.90%), New Jersey (10.75%), and Washington D.C. (10.75%) have the highest marginal individual income tax rates as of January 1, 2022. Indiana (3.23%), and Pennsylvania (3.07%) have the lowest individual income tax rates. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming, on the other hand, have no state income tax, while New Hampshire only taxes interest and dividends and Washington only taxes capital gains.

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Which States Have the Lowest and Highest Property Tax Rates?

Hawaii (0.28%), Alabama (0.41%), and Colorado (0.51%) have the lowest effective real-estate tax rates as of 2022. New Hampshire (2.18%), Illinois (2.27%), and New Jersey (2.49%) have the highest property taxes. How do the various rates affect the yearly property tax bill? Consider a $217,500 home: In Hawaii, the homeowner would pay $606 in property taxes per year, but in New Jersey, the homeowner would pay $5,419 per year.

Are There Any States That Don’t Charge Sales Taxes?

Only Alaska, Delaware, Montana, New Hampshire, and Oregon do not have statewide sales taxes. In addition to state sales taxes, 38 states have local sales taxes. Indeed, Alaska allows municipalities to levy local sales taxes. Alaska (1.76%), Hawaii (4.44%), and Wyoming (5.22%) have the lowest average combined state and local sales tax rates, while Arkansas (9.48%), Tennessee (9.547%), and Louisiana (9.55%) have the highest average combined state and local sales tax rates.

The Bottom Line

Many states impose comparable tax loads on their citizens; if you’re thinking about moving to one of these states, taxes are unlikely to be a decisive factor. However, there are significant discrepancies in tax loads at the high and low ends, which might have a significant influence on your capacity to make ends meet in the short term and save for the long run. While tax rates may not be your first or even fifth consideration, they might be the deciding factor in a tight choice.

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