Depending on your income in 2021, you may be feeling the pain of paying your state and federal income taxes. Some of you reading this post may be feeling a bit more pain based on the state within which you live, how you earn your income, and whether or not you own a home. The overall tax burden can vary widely from state to state.
While seven states boast of not having an income tax, this doesn’t mean you get to live tax-free. They have to fund the state budgets somehow. If you were wondering, the seven states without an income tax are Nevada, Washington, South Dakota, Texas, Florida, Wyoming, and Alaska.
Income taxes are just one part of the overall tax burden of living in a state. Your personal tax burden at the state level can vary widely depending on your financial circumstances. Your tax burden is the proportion of your total personal income required to cover your state and local taxes. The most common types of state and local taxes are personal income taxes, sales taxes, capital gains taxes, and property taxes.
WalletHub compared all 50 states across the three most common types of taxation – property taxes, income taxes, and sales taxes- as a share of your personal income to determine the five states with the highest state tax burdens.
1. Highest State Tax Burden: New York
Ranking New York as the state with the highest tax burden should not be surprising. It has high property values, which lead to high property taxes. New York also has high incomes paired with high tax rates, leading to a high proportion of income needed to cover state income taxes. Lastly, the Empire State also brings in revenue via its sales taxes.
- Total tax burden: 12.75%
- Property tax burden: 4.43% (rank: 6)
- Individual income tax burden: 4.90% (rank: 1 = highest)
- Total sales & excise tax burden: 3.42% (rank: 25)
Hawaii may be a tourists paradise, but Hawaii has the second highest state tax burden in the USA.
2. Second Highest State Tax Burden: Hawaii
Hawaii may be paradise, with many gorgeous beaches and tropical forests. However, the tax burden in Hawaii is not far behind New York.
- Total tax burden: 12.70%
- Property tax burden: 2.55% (rank: 34)
- Individual income tax burden: 3.18% (rank: 8)
- Total sales & excise tax burden: 6.97% (rank: 1 = highest)
Maine has the third highest state tax burden in the USA.
3. State with the Third Highest Tax Burden: Maine
- Total tax burden: 11.42%
- Property tax burden: 5.48% (rank: 1 = highest)
- Individual income tax burden: 2.51% (rank: 21)
- Total sales & excise tax burden: 3.43% (rank: 24)
Vermont has the fourth highest tax burden in the United States
4. Fourth Highest Tax Burden: Vermont
- Total tax burden: 11.13%
- Property tax burden: 5.31% (rank: 2)
- Individual income tax burden: 2.49% (rank: 22)
- Total sales & excise tax burden: 3.33% (rank: 27)
5. Fifth Highest Tax Burden: Minnesota
- Total tax burden: 10.20%
- Property tax burden: 2.93% (rank: 22)
- Individual income tax burden: 3.74% (rank: 5)
- Total sales & excise tax burden: 3.53% (rank: 22)
As a Los Angeles financial planner, I would be remiss if I didn’t include the California tax burden on this list. While California has the highest nominal tax rate of 13.3% in the country, its residents are only hit with the ninth largest tax burden. This is in part due to the progressive tax system, which means relatively low tax rates for many moderate-to-lower income Californians. Where California ranks well is in regards to property taxes. While it has sky-high real estate values in much of the state, increases in property taxes are capped at 2% per year, thanks to Proposition 13. Because of that, many Californians have much smaller property tax burdens than you might expect based on their property values. Capital gains taxes on investment are quite high in California.
While California is known for our amazing weather and and high taxes, our state only ranks as the … [+]
9. California State and Local Taxes
- Total tax burden: 9.72%
- Property tax burden: 2.76% (rank: 30)
- Individual income tax burden: 3.80% (rank: 4)
- Total sales & excise tax burden: 3.16% (rank: 32)
Before you run off and move to a state with a reputation for low taxes, make sure you account for the overall tax burden. If your fiduciary financial advisor offers tax planning (sadly, many don’t), that person should help you estimate the tax-saving a move might bring or save you from moving to another state that would increase your tax burden. That being said, I wouldn’t choose where to live based solely on taxes, but it is something to consider.