Top Taxing and Lowest Tax States Revealed
California's High Taxes and the Lowest Overall Tax Burdens
California, known for its high taxes, has a total of nine different tax brackets, making it one of the states with the highest tax rates in the country. However, when it comes to the lowest overall effective income tax burdens, states with no income tax often rank best.
States like Tennessee, Texas, Florida, South Dakota, and Wyoming, which have no state income tax, generally have effective tax rates around 9.2% or lower, according to recent data. These states offset the lack of state income tax with other revenue sources like sales and property taxes, but overall, they remain tax-friendly when considering total tax burden.
In contrast, states with high income tax rates such as Hawaii, New York, and California also have higher effective tax burdens when combining income, property, and sales taxes. For instance, in California, a married couple that files jointly with $125,000 in taxable income pays a top rate of 8%, while a single person with $40,000 in taxable income pays a top rate of 4%.
Among states with income tax, North Dakota and Arizona have the lowest top rates at about 2.5%, but total burden may be higher due to other taxes. Texas and Florida follow closely with low overall rates due to no income tax but moderate local taxes.
Some states make more of their revenue through sales taxes, property taxes, and inheritance taxes. Five states have flat tax structures - Arizona, Indiana, Iowa, Louisiana, and Pennsylvania. Nine states have no individual income tax - Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
When considering where to live, especially in retirement, factors like the location of family, housing needs, and cultural preferences are often more important than taxes. However, it's crucial to understand how a place's taxes will affect your finances. Comparing states solely by income tax rates doesn't necessarily give a fair picture of what you'll pay in overall taxes if you live there.
A better way to understand how where you live impacts your finances would be to use a cost of living calculator. This holistic view is important because states with no income tax may have higher sales and property taxes, affecting total effective tax rates differently by individual circumstances.
In conclusion, while California may have famously high taxes in all areas - high income tax, high sales tax, high property tax - other states may offer a more favourable overall tax burden. It's essential to consider all taxes when deciding where to live, not just income tax. Taxpayers should consider their earning potential in a particular location to fully understand how a place's taxes will affect their finances.
In contrast, while California has high income taxes and nine different tax brackets, other states without income tax, such as Tennessee, Texas, Florida, South Dakota, and Wyoming, often have lower overall effective tax burdens. For instance, a married couple with $125,000 in taxable income in California pays a top rate of 8%, while residents of a state like Texas or Florida, without an income tax, might have lower effective tax rates due to other revenue sources like sales and property taxes.
When deciding where to live, it's crucial not only to consider income tax rates but also other factors like sales and property taxes, as states with no income tax may have higher effective tax rates due to these taxes. A better way to understand how a place's taxes affect personal finance is to use a cost of living calculator, which provides a holistic view of taxes, helping individuals make informed decisions about where to live and how it will impact their personal-finance situations.
