States with the Highest Income Tax Rates contrasted with those with the Lowest
When it comes to taxes, the United States offers a diverse landscape, with some states boasting low income tax rates and others known for their high taxes. Here's a look at the states with the lowest overall effective tax rates and those with the highest.
States with the Lowest Overall Effective Tax Rates
The states with the lowest overall effective tax rates are typically those without income tax. These include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. These states fund themselves largely through sales, property, and other excise taxes rather than income tax.
New Hampshire, which taxes interest and dividends but recently eliminated its tax on these, effectively has no income tax.
States with Relatively Low Income Tax Rates
Among states with income tax, North Carolina, Mississippi, Missouri, and Nebraska offer comparatively low rates that are decreasing over time. North Carolina's flat tax rate is dropping to 4.25% for 2025 and planned to reach 3.99% in the future. Mississippi lowered its flat rate from 4.7% to 4.4% in 2025, aiming for 3% by 2030. Missouri’s top rate is decreasing to 4.7% in 2025, with further reductions planned. Nebraska’s top rate declined to 5.2%, with a plan to lower it to 3.99% by 2027.
States with High Income Tax Rates
California, New Jersey, Washington D.C., New York, Hawaii, and Oregon are among the states with the highest income tax rates. California, famously known for its high taxes in all areas, has a marginal tax rate of up to 13.3%. New York has a marginal tax rate of 10.9%, while Hawaii and Oregon have marginal tax rates of 11% and 9.9%, respectively.
In California, a single person with $40,000 in taxable income pays a top rate of 4%, while a married couple filing jointly with $125,000 in taxable income pays a top rate of 8%. In New York, a single filer with the same income pays a top rate of 8.82%.
Considerations for Taxpayers
Taxpayers should consider their earning potential in a particular location to understand how taxes will affect their finances. It's also essential to remember that taxes pay for services that matter to people, such as education, infrastructure, and public safety.
When choosing where to live, especially in retirement, taxes should be the least of the considerations. Other factors like cost of living, quality of life, healthcare options, and recreational activities should also be taken into account.
Diverse Tax Structures Across States
The tax structures across states are diverse. Some states, like California, have a marginal tax rate structure, while others, such as Arizona, Indiana, Iowa, Louisiana, Pennsylvania, and Ohio, have a flat tax structure. North Dakota and Ohio have a graduated, or progressive tax structure.
Using a cost of living calculator can help understand how where you live impacts your finances. It's important to consider all factors when making a decision about where to live.
[1] Tax Foundation. (2022). State Individual Income Tax Rates and Brackets. [Online]. Available: https://www.taxfoundation.org/state-individual-income-tax-rates-brackets/ [2] Tax Foundation. (2022). State and Local Sales Tax Rates. [Online]. Available: https://www.taxfoundation.org/state-local-sales-tax-rates/ [3] Tax Foundation. (2022). State and Local Property Tax Rates. [Online]. Available: https://www.taxfoundation.org/state-local-property-tax-rates/ [4] Tax Foundation. (2022). State and Local Tax Burden. [Online]. Available: https://www.taxfoundation.org/state-local-tax-burden/
- For individuals prioritizing personal-finance, states with low overall effective tax rates, such as Alaska, Florida, Nevada, and South Dakota, which primarily rely on sales, property, and other excise taxes rather than income tax, can be attractive options.
- When considering states with income tax, some businesses might find North Carolina, Mississippi, Missouri, and Nebraska more financially favorable due to their comparatively low and decreasing tax rates, like North Carolina's planned reduction to 3.99% by future years.
