You can do little about federal income tax rates, but your overall tax burden varies widely depending upon where you live. Income tax rates fluctuate considerably among the 50 states and US territories. That’s not all: look at other state and local taxes, such as property taxes and sales taxes. Bottom line, bottom line, bottom line: Make it your mantra.
The 5 worst states for high earners
The five states below are ranked by their highest marginal income tax rates. Marginal tax rates tell what you will pay on your next dollar earned. Federal income tax brackets for 2022 start at 10% and go up to 37%.
If that promotion rockets you into the 37% bracket—that’s if you’re making $523,601+ per year, you will pay federal income taxes on any additional income earned at the Heimlich maneuver-inducing rate of 37%. This differs from your effective tax rate, which will be less than 37%, as it encompasses all your income that was taxed at various rates starting at 10%.
California: 13.3% top marginal rate
It’s not all sunshine, surfing, and good vibes in Cali: The Golden State’s top marginal tax rate is 12.3% (for single filers making more than $625,369) and ranges from 1% to 12.3% in various income increments. If your earnings top $1 million, you’ll be tapped for an extra 1% surcharge, bringing the top marginal tax rate to 13.3%.
Hawaii: 11% top marginal rate
Hawaii has a graduated income tax structure, with a top marginal rate of 11% for single filers who earn more than $200,000 and joint filers pulling in more than $400,000. The lowest marginal tax bracket is 1.4%.
(You didn’t think all that sunshine in these two states came without a dark cloud, did you?)
New Jersey: 10.75% top marginal rate
New Jersey has a graduated income tax structure, topping out at 10.75%, with the lowest marginal tax bracket of 1.4%. The Garden State’s top tax bracket is nothing like the Seaside club that let anyone in: You’ll only pay 10.75% on earnings above $1 mill.
Oregon: 9.9% top marginal rate
Oregon has four income tax rates, starting at 4.75%. The second-highest marginal rate is 8.75%, which begins at an income level of $9,200 for single filers and $18,400 for those filing married and joint. The 9.9% marginal rate starts at an income level of $125,000 for single filers and $250,000 for those filing married and jointly.
Minnesota: 9.85% top marginal rate
Minnesota has four income tax rates, starting at 5.35%. The 9.85% marginal rate begins at an income level of $171,220 for single filers and $284,210 for those married filing jointly.
5 states with the highest overall tax burdens
Looking at the top marginal tax rates doesn’t give you the fullest picture of how much a state collects in taxes from its residents and visiors. The overall tax burden is calculated by the total average income rate for taxpayers, the most significant property tax burden, and the total burden for sales and excise taxes.
New York: 12.75% overall tax burden
New York takes the dubious prize of top overall average income tax burden and the sixth-highest property tax burden.
Take a day or two to digest this streetside Pretzel-sized tax bite before getting into Manhattan rent and property prices.
Hawaii: 12.7% overall tax burden
Hawaii boasts the top overall sales and excise tax burden and the eighth-highest individual income tax burden.
Maine: 11.42% overall tax burden
Maine takes advantage of its tourist-destination status and imposes the top overall sales and excise tax burden and the eighth-highest individual income tax burden.
Vermont: 11.13% overall tax burden
Vermont has the second-highest property tax burden, the 22nd-highest personal income tax burden, and the 27th highest sales and excise tax burden.
Minnesota: 10.20% overall tax burden
Minnesota residents not only turn into icicles in the winter, but they also enjoy sport the fifth-highest overall individual income tax burden and the 22nd-highest property tax and sales and excise tax burdens in the country.
Which states and territories have no income taxes?
OK, now that we’ve dulled the luster on your 45% salary boost, a corner office, and overgenerous stock options, it’s time for some good news. Have a look at these seven states with no personal income taxes:
- South Dakota
Better yet: Tennessee and New Hampshire tax interest and dividend income but impose no income tax on wages earned.
And here’s a list of states looking at eliminating or reducing their state income taxes, according to CBS:
- New York
- South Carolina
Due to the pandemic, many states find themselves in good shape due to higher tax revenues fueled in part by higher corporate tax revenues resulting from the economic recovery we’ve seen over the past year in many areas.
When we read about taxes, the focus is often on federal income taxes, but state and local taxes grab their share. States differ in their level of income, property, sales, and excise tax burdens.
That job offer in Palo Alto conjuring up weekends in your new swimming pool, sipping wine in Napa, and shopping weekends in San Francisco? Slow down a minute. Before accepting a job or transfer in a given state, do your homework and see how much the tax bite will eat up any salary increase and perks.