Your capacity to make ends meet may benefit or suffer depending on where you live. Property, licensing, state and local sales, property, inheritance, estate, and gasoline excise taxes are just a few of the taxes that eat into your discretionary income. You can stretch your cash by comparing the tax environment with your financial situation. The states with the highest and lowest tax rates are listed below.
Relevant Lessons
- California has an income tax of 13.3%, Hawaii 11%, New Jersey 10.75%, Oregon 9.9%, and Minnesota 9.85% will have the highest rates in 2021.
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming are among the eight states without a personal income tax.
- Tennessee, Louisiana, Arkansas, Washington, and Alabama have the highest overall sales taxes, with rates of 9.55%, 9.52%, 9.51%, and 9.23% respectively.
- Alaska has the lowest overall sales tax of 1.76%, followed by Oregon, Delaware, Montana, and New Hampshire.
The mantra “location, location, location” relates to more than simply real estate. Your capacity to make ends meet may benefit or suffer depending on where you live.
Numerous taxes, including inheritance, estate, excise, license, state, and local sales taxes, can significantly reduce your take-home pay. After paying the Internal Revenue Service, the state tax bill is frequently the largest one that citizens must pay. Finding the states with the lowest taxes may therefore be a wise financial decision.
A personal income tax is now levied by 41 states and the District of Columbia. You might be able to stretch your money further if you compare the tax environment to your financial situation.
Top 10 states for personal income tax rates
Unless you earn more than $1 million, California is the state that taxes you the most, with a 12.3% rate, according to a comparison of 2020 tax rates compiled by the Tax Foundation. Then, you must pay the maximum rate of 13.3%. The state’s 1% mental health services tax is levied in addition on earnings over $1 million.
The top 10 states (or legal jurisdictions) with the highest income taxes as of 2021 are:
13.3% in California
New Jersey 10.75%
Hawaii 11%
Minnesota 9.9%
Oregon 9.85%
The District of Columbia 8.95%
8% in New York
Vermont 8.75%
Iowa 8.53%
Wisconsin 7.65%
The amount that a resident actually pays is determined by the personal income tax floor, deductions, exemptions, credits, and various definitions of taxable income that are present in each of these states.
10 states with the lowest rates of individual income taxes
Only eight states do not impose an individual income tax:
Wyoming
Washington
Texas
Tennessee
Nigeria
South Dakota
Florida
Alaska
The only income that New Hampshire taxes is interest and dividend income, not wages.
With a 3.07% flat tax, Pennsylvania is the 10th least expensive state in the union among those that levies income taxes as of 2021.
Low personal income tax rates might be deceiving; for instance, the absence of tax deductions may result in higher effective rates for you to pay. A more true assessment of affordability, particularly if you’re on a fixed income, can be obtained, according to the Retirement Living Information Center, by totaling your taxes, including sales and property taxes. To begin your search for a more affordable area, start with one of these states with the lowest income taxes.
The greatest and lowest property tax states
Property taxes are a local matter rather than a state matter. According to the Tax Foundation’s estimate of median household property tax payments as a proportion of median household income from the Census Bureau’s 2018 American Community Survey, the following counties have the highest property taxes:
New Jersey’s Essex County 16.86%
New Jersey’s Passaic County 14.62%
New Jersey’s Union County 12.70%
The parishes in Louisiana with the lowest property tax rates as a percentage of income are those listed below:
0% for Assumption Parish
Vernon County 0.45%
Grant Parish, 0.68 %
As a percentage of earned income, Louisiana has some of the lowest property tax rates since it provides a homestead exemption. The first $7,500 of the assessed property value might avoid paying property taxes under this law.
Assessed home values are equal to one-tenth of the actual worth of the home. A $100,000 house, for instance, would be valued at $10,000. Due to Louisiana’s homestead exemption, your home’s first $75,000 in value is not taken into account when determining your property tax bill, which significantly reduces the amount of your income that must be set aside for these taxes.
Buyers and sellers of sales tax
If you’re a consumer, you should be aware that all states, with the exception of Oregon, New Hampshire, Montana, and Delaware, rely on sales tax for funding.
Alaska is one of these and has no income tax as a result of the severance tax it imposes on the extraction of oil and natural gas. Local governments may impose a sales tax, which can pile up, in 37 states, including Alaska and Montana. In 2021, Lake Providence, Louisiana, which has a combined state and city rate of 11.45%, will have the unpleasant distinction of having the highest sales tax in the nation.
According to the Tax Foundation’s ranking of the states with the highest overall sales taxes for 2021, the top five are as follows:
Tennessee’s rate of taxation is 9.55%
Louisiana’s 9.52%
Arkansas, 9.5%
8.23% Washington
9.22% in Alabama
The states with the lowest overall sales taxes are:
Alaska, 1.76 %
Delaware 0%
Oregon 0%
Montana 0%
New Hampshire 0%
Leaders in income and sales taxes combined
Instead of reporting these costs from the state revenue viewpoint utilized by the Census Bureau, the Tax Foundation measures the individual tax burden by the amount of local and state taxes that taxpayers actually pay. Americans paid an average rate of 9.9% in state and local taxes, according to its 2019 State and Local Tax Burden Rankings research.
The highest state and local tax combinations, according to the foundation, are in the following top five states:
12.7% in New York
Connecticut 12.6%
North Jersey 12.2%
Illinois, 11.0%
11.0% for Wisconsin and California
Since 2005, the same states have continuously placed in the top three, according to the foundation.
Even while taxes might not be the first thing you think about when choosing a place to live, being aware of the tax laws in the areas you’re considering moving to could help you save money in the long run, especially when you’re retired.
