Depending on your income in 2021, you may feel the pain of paying your state and federal income taxes. Some of you reading this article may feel a little more pain depending on what state you live in, how you earn your income, and whether or not you own a home. The overall tax burden can vary significantly from state to state.
While seven states boast of having no income tax, that doesn’t mean you can live tax-free. They have to finance state budgets in one way or another. If you were wondering, the seven states with no income tax are Nevada, Washington, South Dakota, Texas, Florida, Wyoming and Alaska.
Income taxes are only part of the overall tax burden of living in a state. Your personal tax burden at the state level can vary significantly depending on your financial situation. Your tax burden is the proportion of your total personal income needed 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 the 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 tax burdens. .
1. Highest State Tax Burden: New York
Ranking New York as the state with the highest tax burden should come as no surprise. It has high land values, resulting in high property taxes. New York also has high income coupled with high tax rates, resulting in a high proportion of income needed to cover state income taxes. Finally, the Empire State also generates revenue through its sales taxes.
- Total tax burden: 12.75%
- Property tax burden: 4.43% (rank: 6)
- Personal income tax expense: 4.90% (rank: 1 = highest)
- Total sales and excise tax charge: 3.42% (rank: 25)
2. Second Highest State Tax Burden: Hawaii
Hawaii might be paradise, with plenty of gorgeous beaches and rainforests. However, the tax burden in Hawaii is not far behind that of New York.
- Total tax burden: 12.70%
- Property tax burden: 2.55% (rank: 34)
- Personal income tax expense: 3.18% (rank: 8)
- Total sales and excise tax burden: 6.97% (ranking: 1 = highest)
3. State with the third highest tax burden: Maine
- Total tax burden: 11.42%
- Property tax burden: 5.48% (rank: 1 = highest)
- Personal income tax expense: 2.51% (rank: 21)
- Total sales and excise tax charge: 3.43% (rank: 24)
4. Fourth highest tax burden: Vermont
- Total tax burden: 11.13%
- Property tax burden: 5.31% (rank: 2)
- Personal income tax expense: 2.49% (rank: 22)
- Total sales and excise tax charge: 3.33% (rank: 27)
5. Fifth highest tax burden: Minnesota
- Total tax charge: 10.20%
- Property tax burden: 2.93% (rank: 22)
- Personal income tax expense: 3.74% (rank: 5)
- Total sales and excise tax charge: 3.53% (rank: 22)
Like a Los Angeles Financial Planner, I would be remiss if I did not include California’s tax burden in this list. While California has the highest nominal tax rate of 13.3% in the country, its residents only bear the ninth highest tax burden. This is partly due to the progressive tax system, which means relatively low tax rates for many middle-to-low-income Californians. Where California ranks well is when it comes to property taxes. Although it has exorbitant real estate values in much of the state, property tax increases are capped at 2% per year, thanks to Proposition 13. For this reason, many Californians have significantly higher property tax burdens. lower than you might expect based on their land values. Capital gains taxes on investments are quite high in California.
9. California State and Local Taxes
- Total tax burden: 9.72%
- Property tax burden: 2.76% (rank: 30)
- Personal income tax expense: 3.80% (rank: 4)
- Total sales and excise tax charge: 3.16% (rank: 32)
Before you run away and move to a state known for its low tax rates, be sure to consider the overall tax burden. If your fiduciary financial advisor offers tax planning (unfortunately, many don’t), this person should help you estimate the tax savings a move might bring or save you from moving to another state which would increase your tax burden. That being said, I wouldn’t choose where to live based solely on taxes, but it’s something to consider.