Highest and Lowest Income Tax Rates Across Five States
In the pursuit of finding the ideal location for retirement or a change of residence, taxes often take centre stage. However, a closer look at the tax landscape reveals a more nuanced picture.
Oregon, for instance, boasts a marginal tax rate of 9.9%, while California's income tax, sales tax, and property tax are notably high. Yet, comparing states solely by income tax rates doesn't give a fair picture of overall taxes. California, for example, has a marginal tax rate of 13.3% for income above $721,314 for single filers in 2024, and 12.3% for married couples filing jointly above $1,442,628 in the same year.
On the other hand, nine states, including Florida, Nevada, and South Dakota, have no individual income tax. These states rely more on sales, property, and other local taxes but still achieve relatively low overall tax burdens. South Dakota, for instance, ranks 7th lowest nationally for taxes paid per capita at $3,052, with an actual combined sales tax rate of about 6.4%.
Among states that do impose an income tax, North Dakota stands out with the lowest rate on middle-income earners at 1.95%. Arizona and Ohio follow closely with flat income tax rates of 2.5% and 2.75%, respectively. Hawaii, New York, and New Jersey, on the other hand, have marginal tax rates of 11%, 10.9%, and 10.75%, respectively.
However, what matters are personal factors like family, housing needs, and cultural preferences. Retirees should consider what kind of breaks are available in a state, such as property tax exemptions or sales tax exemptions on certain goods and services.
Moreover, moving to a state with lower taxes but poor services might not be satisfying. Using a cost of living calculator can help understand how where you live impacts your finances, taking into account not only taxes but also the cost of goods and services, housing, and healthcare.
In conclusion, the states with the lowest effective tax rates overall are found mainly in the nine states with no income tax. For states with income taxes, North Dakota, Arizona, and Ohio offer among the lowest rates on middle-class incomes, but total effective rates vary with local tax structures. Ultimately, the decision of where to live should not be based solely on taxes, but on a comprehensive evaluation of the location's services, cost of living, and personal preferences.
[1] Tax Foundation. (2022). State Individual Income Tax Rates and Brackets. [online] Available at: https://www.taxfoundation.org/state-individual-income-tax-rates-and-brackets/
[2] Tax Foundation. (2022). State and Local Tax Burden Rankings. [online] Available at: https://www.taxfoundation.org/state-local-tax-burden-rankings/
[3] Tax Foundation. (2022). State and Local Sales Tax Rates. [online] Available at: https://www.taxfoundation.org/state-local-sales-tax-rates/
[4] Tax Foundation. (2022). State and Local Property Tax Rates. [online] Available at: https://www.taxfoundation.org/state-local-property-tax-rates/
- When evaluating potential locations for retirement or a change of residence, it is important to not only consider the income tax rates but also the overall tax landscape, including sales and property taxes, as these can significantly impact personal finance.
- states like Florida, Nevada, and South Dakota, which have no individual income tax, can offer relatively low overall tax burdens, but one should also consider factors like local tax structures, cost of living, and personal preferences when deciding on a location.
