One of the most consistent debates emanating out of Washington in the past 6 years has been that dealing with income tax. Whether high, low, "fair" or "unfair", said discussions, however, focus solely on tax paid at the Federal level, and largely ignore that "other" key tax: state. Which is surprising, considering some states such as California demand a total contribution amounting to a third of the highest marginal Federal tax bracket, which could make some wonder if those bracing sea breezes are really worth it. But what about the other states? Here is the full breakdown of the states with the top income tax rates, those with the lowest, and all the states inbetween.
As Bloomberg reports citing Tax Foundation data, as of Jan. 1, nine states don't levy income tax on wages, and eight have a flat tax. Brackets in which taxes kick in differ by state, as do exemptions.
Here are the highest "taxing" states in the US:
- California 13.3%
- Hawaii 11%
- Oregon 9.9% (a, b)
- Minnesota 9.85%
- Iowa 8.98% (b)
- New Jersey 8.97% (a)
- Vermont 8.95% (tie)
- Washington, D.C. 8.95% (tie)
- New York 8.82% (a, c)
- Maine 7.95%
a) Local income taxes are excluded.
b) Allows "some or all federal income tax paid to be deducted from state taxable income," according to the Tax Foundation.
c) The Tax Foundation notes that New York has "'tax benefit recapture, by which many high-income taxpayers pay their top tax rate on all income, not just on amounts above the bracket threshold.”
And the lowest:
- Pennsylvania 3.07%* (a)
- North Dakota 3.22%
- Indiana 3.4%* (a)
- Michigan 4.25%* (a)
- Arizona 4.54%
- Colorado 4.63%* ** (d)
- Kansas 4.8% (a)
- New Mexico 4.9%
- Alabama 5% (a, b): tied with Illinois*, Mississippi, New Hampshire* (c) and Utah
**of federal adjusted gross income with modifications
a) Local income taxes are excluded.
b) Allows "some or all federal income tax paid to be deducted from state taxable income," according to the Tax Foundation.
c) Tax applies to interest and dividend income only.
(d) of federal taxable income
And all the other ones, sorted alpabetically:
Alabama has the lowest state and local property tax collections per person, though it's one of seven states that don’t provide a sales tax break for groceries. It doesn't give beer drinkers a break, either, imposing the nation’s third-highest beer excise tax, at $1.05 per gallon. Taxes get complicated for same-sex couples in Alabama. Because the state doesn't recognize their unions, couples must each file single state income tax returns and apportion their joint income according to a ratio.
At least one obsolete tax law remains on the books here -- a tax for Confederate veterans of the Civil War. The tax now supports the Confederate Memorial Park, which includes a museum.
Alaska gets significant income from corporate taxes, mostly from the oil-and-gas industry. The state collects high revenue per person -- $19,686 in 2012, according to the Tax Foundation -- without collecting income, state sales tax or inheritance tax. Alaska's average local sales tax rate is 1.69 percent.
Property taxes, however, at $2,076 per person, are relatively high. And while a full day on a fishing boat or oil rig will likely put many of the state’s residents in the mood for a cold one, Alaska’s beer excise tax is the second-highest in the nation, at $1.07 per gallon.
With a comparatively low income tax, Arizona relies heavily on other levies. It gets a little more than 70 percent of its state and local tax collections from property tax and general sales taxes. Still, its tax revenue is lower than other states' -- it collects $4,812 per capita (as of 2011), ranking 49th out of 50.
Arizona doesn't recognize the marriage of same-sex couples. The state instructs those who file joint federal returns to file state income tax returns as single filers and then requires an additional form to determine how to allocate joint income from the federal return.
Arkansas has the sixth-lowest state and local revenue per capita, according to the Tax Foundation. More than 60 percent of state and local tax collections come from general sales tax, individual income tax and corporate income tax. Arkansas does not recognize same-sex marriage and requires single returns from both members of same-sex couples.
Living in a place that's home to Hollywood, the Golden Gate Bridge, beaches and mountain ranges comes at a price, and this includes higher taxes. California’s top income tax rate is 12.3 percent for up to $1 million in income, and then jumps to 13.3 percent, the highest in the nation. The state’s sales tax rate (not including local sales taxes) is also the highest in the nation, as is the state gas tax rate, at 52.5 cents per gallon.
Tax season is a little easier here for same-sex married couples than in many other states. Since California recognizes same-sex marriage, couples don't have to use different or additional forms to determine how much state tax is due.
*There is an additional 1 percent tax on income over $1 million, bringing the top rate to 13.3 percent.
Of the 44 states that levy an individual income tax, Colorado's is sixth lowest, according to the Tax Foundation. Colorado made history in 2012 as one of the first two states to legalize recreational adult marijuana use, and now the state is raking in cash from taxing pot. It imposes a 15 percent excise tax on recreational marijuana and marijuana-related products and a general 2.9 percent sales tax. And that might not be all, depending on where the stuff is purchased -- localities may enact their own special taxes. Recreational marijuana sales brought in $2 million in taxes in January, and state officials expect steady revenue patterns to develop by April.
Connecticut has the third-highest state gasoline tax in the country, behind California and New York, at 49.3 cents per gallon. It’s generally a high-tax jurisdiction, which is evident from its “tax freedom day,” representing how long a person would have to work into the year to have earned enough to pay all federal, state and local taxes. Connecticut has the latest such day of all states -- May 13, according to the Tax Foundation. Those high taxes also come with the highest income per capita -- $60,847 in 2013, according to preliminary numbers from the Bureau of Economic Analysis. Connecticut is one of 13 states that tax Social Security income.
*Exemption is $2 million.
Delaware’s top individual income tax rate was scheduled to decrease in 2014, but state officials decided to keep the rate at 6.6 percent to plug a budget shortfall. For 2012, the state had the seventh-highest individual income tax collections per person, at $1,307. It also ranks as one of the highest per capita collectors of corporate income tax, placing fifth at $288 per person.
*Exemption is $5.34 million.
Retirees and millionaires have good reason to flock to Florida, since it has no personal income tax, inheritance tax or estate tax. Still, the state is projected to have more money to play with this year after state economists forecast a $1.2 billion budget surplus, thanks in part to increased sales tax revenue. Governor Rick Scott has proposed using some of the surplus to cut $500 million in taxes and fees.
It’s cheaper to buy cigarettes in Georgia than in most of the rest of the U.S., because Georgia’s cigarette taxes rank 47th out of 50, at $0.37 per 20-pack. But not all sin taxes are equal here. It’s a little more expensive, in tax terms, to drink beer and wine than in other states. Georgia’s wine excise tax is $1.51 per gallon (eighth in the nation), while its beer excise tax is $1.01 per gallon (fourth nationwide). Want to drink and still pay lower taxes here? Choose spirits, which are taxed at $3.79 and rank 34th-highest in the country.
Hawaii has the second-highest top income tax rate in the country, after California. It's one of the few states that tax net capital gains at below the top income tax rate -- they’re taxed at 7.25 percent. It's one of seven that impose the full sales tax rate on groceries. Hawaii’s combined state and local sales tax rate of 4.35 percent places it near the bottom of the pack.
*Exemption is $5.34 million.
The Idaho State Tax Commission is among the states reminding consumers this year that all of those Internet purchases on which they didn't pay sales tax weren't tax-free -- consumers owe a 6 percent use tax to the state when the goods are used in Idaho. Consumers must include this in their income tax returns, but since these taxes are notoriously difficult to track and collect, whether they pay up is another story. Idaho is one of seven states that don't offer a sales tax break for groceries.
Illinois’s income tax rate is slated to drop to 3.75 percent in January, but Governor Pat Quinn has proposed making a 2011 income tax hike permanent that would keep the current 5 percent rate. The debate could spill over into the governor’s reelection season.
*Flat rate ; **Exemption is $4 million.
Amazon began collecting Indiana’s 7 percent sales tax on Hoosiers’ purchases on its site this January. Indiana was originally supposed to phase out its inheritance tax over 10 years beginning in 2013, but instead the state repealed the tax for people dying after Dec. 31, 2012. In coming years businesses could pay less in taxes, too. Governor Mike Pence signed legislation in March that includes a provision that will gradually reduce corporate income taxes in Indiana to 4.9 percent in 2023. Indiana’s current corporate income tax rate is 7.5 percent, but that is scheduled to decrease on July 1 to 7 percent.
The top bracket of Iowa’s state income tax reaches 8.98 percent at $68,175 in 2014. The state phased out its tax on Social Security income in 2014. If you want to raise a toast in celebration, it’ll cost you: Iowa has some of the highest excise tax rates on table wine and spirits, according to the Tax Foundation and the Distilled Spirits Council of the United States.
A potential gas tax increase, intended to pay for transportation infrastructure, has been percolating in the Iowa Legislature this session, but nothing had passed as of mid-April.
Note: Spouse, lineal-ascendant and lineal-descendant transfer is tax-free; sibling or child-in-law transfer is taxed at 5 percent to 10 percent; all other transfers are taxed at 10 percent to 15 percent.
A few years ago Kansas enacted sweeping tax cuts. Recently, the Center on Budget and Policy Priorities, a Washington-based group that supports programs that assist the poor, released a study citing Kansas' experience as a cautionary tale for other states. "As other states recover from the recent recession and turn toward the future, Kansas's huge tax cuts have left that state's schools and other public services stuck in the recession, and declining further," the report said.
The Sunflower State is one of 13 that tax Social Security Income; an exemption applies to Social Security income received by taxpayers with annual federal adjusted gross income of $75,000 or less. Kansas does not recognize same-sex marriage, so for income tax purposes that means same-sex couples who file a federal joint return must allocate their income on two separate single returns using a state-provided schedule.
The Bluegrass State may cater more to jockeys than car drivers. Kentucky ranks 16th among the states on gas tax, making drivers pay 30.8 cents per gallon. The gas tax has been largely debated this legislative season, with some legislators proposing to raise it to pay for transportation projects. ??
Note: Spouse, parent, lineal-descendant and sibling transfer is tax-free; aunts, nieces, nephews, and child in-law transfer is taxed at 4 percent to 16 percent with a $1,000 exemption; all other transfers are taxed at 6 percent to 16 percent with a $500 exemption.
The home of “Duck Dynasty” has long been a destination for sportsmen and partiers. Visitors should be prepared to be taxed heavily on their fun. Louisiana’s state and local sales tax rate of 8.89 percent is third-highest of the states. That doesn’t mean the state is rolling in dough: Its general sales tax collections per person in 2012 were $614, putting Louisiana in 37th place. Its income tax can be burdensome for same-sex married couples. It requires them to each fill out pro forma single federal returns and then use that information on their single state returns.
Maine recognizes same-sex marriage, so any married couple there can file a joint state tax return. The state’s cigarette excise tax is $2 per 20-pack, making it the 11th-highest cigarette excise tax in the country. Maine imposes a 5.5 percent state sales tax on medical marijuana, but the 7 percent tax rate on prepared food applies if the herb is baked into brownies.
*Exemption is $2 million.
Maryland and New Jersey are the only states with both an estate tax and an inheritance tax. This year Maryland is expected to enact significant changes to its estate tax that will increase the exemption amount. The current $1 million exemption would be gradually increased over five years to match the federal government’s exemption amount, which is now $5.34 million, and is indexed for inflation.
The General Assembly had a recent brush with Hollywood when "House of Cards" star Kevin Spacey visited Annapolis to persuade lawmakers to increase the Netflix show’s subsidy for its third season. The show is set in the District of Columbia, but much of it is filmed in Maryland.
Note: Spouse, lineal-descendant, spouse of lineal-descendant, and sibling transfer is tax-free; all other transfers are taxed at 10 percent.;*Exemption is $1 million.
Massachusetts’ individual income tax rate decreased at the beginning of December, because state revenues had grown enough to trigger a rate cut from 5.25 percent to 5.2 percent. Last year, the Massachusetts legislature enacted a sales tax on computer software services in 2013, only to repeal it a few months later when it proved unpopular with businesses.
The state has one of the highest cigarette taxes -- at $3.51 per 20-pack, it's second only to New York. Gamblers here might notice that they're taking less in winnings home since last year, when the state started withholding income tax from winnings of more than $600, regardless of the original wager amount.
*Flat rate; **Exemption is $1 million.
The Great Lakes State has a gas tax of 39.1 cents per gallon, the sixth-highest in the country. Michigan, like many other states, gets more in property tax revenue, in percentage terms, than from any other state and local tax. Property tax makes up 37.6 percent of state and local tax collections, followed by general sales tax (26.3 percent), individual income tax (18.8 percent) and corporate income tax (2 percent).
Tax cuts are coming in after this legislative session. Last year Minnesota became the only state besides Connecticut to impose a gift tax, but this year legislators repealed it. Those who already had paid the tax should look for a check -- the state will refund any payments. Lawmakers also increased estate tax exemption amounts and repealed several “business-to-business” sales taxes -- warehousing or storage services for tangible personal property, repairing and maintaining electronic precision equipment and repairing and maintaining commercial and industrial machinery and equipment.
*Exemption is $1.2 million.
Missouri has the country’s lowest cigarette taxes, at 17 cents per pack. There had been talk of raising that tax, but voters narrowly defeated a tobacco tax initiative in 2012. Low taxes on beer, too: Missouri ranks 49th with a beer excise tax of 6 cents per gallon.
Montana is among the 13 states that tax Social Security income. However, it's also one of five states that don't impose a state-level sales tax. It gets 39 percent of its state and local revenue from property tax.
Nebraska enacted several tax cuts in early April, which include indexing tax brackets for inflation, exempting more Social Security income from taxes, a sales tax exemption for farm machinery, an increase to the state's property tax credit program and the expansion of a property tax homestead exemption.
Note: Transfer to a spouse or charitable organization is tax-free; transfer to descendants and siblings is taxed at 1 percent with a $40,000 exemption; transfers to aunts, uncles, nieces and nephews are taxed at 13 percent with a $15,000 exemption. All other transfers are taxed at 18 percent with a $10,000 exemption.
Nevada’s lack of an income tax makes sales and property taxes crucial revenue generators. And since January, Nevada residents have been paying sales tax on their Amazon.com purchases.
For visitors who make it to Las Vegas for a little fun, Nevada imposes an additional tax of 5 percent to 10 percent on admission, food, refreshments and merchandise. Visitors can gamble from their hotel rooms now, since Nevada was the first state to legalize online gambling last year.
The “Live Free or Die” state doesn’t tax most types of income, other than a 5 percent tax on interest and dividend income. New Hampshire relies heavily on property taxes, getting more than 60 percent of its state and local tax collections from them, according to Tax Foundation data.
New Hampshire may have a tough time following the lead of other states to capitalize on sales of recreational marijuana. In late March the state’s House of Representatives killed a bill that would have legalized small amounts of recreational marijuana for those 21 and up.
*On interest and dividend income, not wages
Same-sex married couples in New Jersey can use a joint tax return for both federal and state income tax filings. And gamblers can choose whether they place their bets by computer or in person, since New Jersey recently started allowing online gambling. In February, online gambling brought $10.3 million in revenue to the state.
*Exemption is $675,000.
Note: Transfer to a spouse, domestic partner, lineal descendant or charitable organization is tax-free; transfer to children-in-law is taxed at 11 percent to 16 percent with a $25,000 exemption; all other transfers are taxed at 15 percent to 16 percent with a $500 exemption.
The fictional home of “Breaking Bad” may not be the ideal place for service providers. New Mexico is one of a handful of states in which services are presumed to be subject to sales tax. It depends more on general sales tax than on other levies for its state and local tax revenue, and collects some of the lowest property taxes in the country, ranking 47th. It doesn't have an inheritance tax, and its gas tax is relatively low at 18.88 cents per gallon. Same-sex couples can file a joint state income tax return, because New Mexico recognizes same-sex marriage.
New York collects more individual income tax per person than any other state: $2,289 as of 2011. And its gas tax of 49.6 cents per gallon is the second-highest in the U.S. But under its recently enacted budget, some New York residents may pay less in property taxes.
A plan was announced earlier this year to allow 20 hospitals to distribute medical marijuana via executive order, but it’s unclear whether the trial program will lead to a larger plan to tax and regulate the herb.
Note: For people who die on or after April 1, 2014, and before April 1, 2015, the exclusion amount is $2,062,500 and the rate range is 3.06 percent to 16 percent. New York is increasing the estate tax exclusion amount over three years. By April 1, 2017, it will be $5,250,000.
North Carolina residents have had to wave goodbye to their tax-free online shopping days. In February, Amazon started collecting sales tax on purchases delivered here, ending a long disagreement with the state. And last year’s first-time-in-a-century Republican control of the state’s executive and legislative branches helped usher in a new era of a flat income tax rate of 5.8 percent, replacing the state’s graduated rate structure.
Like some other states, North Carolina has grappled with how to make up lost gas tax revenue due in part to more fuel-efficient vehicles on the road. Electric car owners now pay a new $100 registration fee.
These are boom times for North Dakota. According to the most recent annual U.S. Census information, the state's severance taxes -- a tax on natural resources taken out of the ground -- accounted for 56.7 percent of its total tax collections in 2012. At the same time, its top income rate of 3.22 percent applies only after the taxpayer’s income reaches $405,100. Retirees are taxed on Social Security income.
There are downsides for some taxpayers in the Roughrider State. It doesn't recognize same-sex marriage, so the couples must allocate income to two single returns using a schedule provided by the state.
Ohio Governor John Kasich has again proposed cutting the income tax, but this time he wants to make up the revenue with a new tax on oil drillers, a hike in the Commercial Activity Tax and a tax increase on cigarettes, tobacco products and electronic cigarettes. The state doesn't recognize same-sex marriages, so couples must allocate their income between two single state returns and use an additional state-provided schedule to determine their state income tax liability.
Oklahoma has a pretty low income tax rate but is one of seven states that tax groceries at the full sales tax rate. Its combined state and local sales tax rate of 8.72 percent ranks fifth-highest among the states. Drivers of gas-guzzlers get a break here -- the state’s 17-cents-per-gallon gas tax ranks 47th in the nation.
Oregonians have no sales tax but pay one of the highest state income tax rates in the country, at 9.9 percent for top filers. That's right behind California and Hawaii. When same-sex married couples in Oregon file their taxes this year, they'll be able to use their federal adjusted gross income on their joint return.
*Exemption is $1 million
Pennsylvania's 3.07 percent flat income tax rate is the lowest top rate of states that impose individual income tax, according to the Tax Foundation, and its property tax collections per capita of $1,305 are 25th lowest nationally. Taxpayers here work until April 17 to earn enough to pay the year's total tax bill.
Pennsylvania has one of the highest corporate income tax rates of the states, at 9.9 percent. Only two jurisdictions -- Iowa (12 percent) and the District of Columbia (9.975 percent) -- have higher rates. Not all of the state’s taxes are high; a recent report found that Pennsylvania has among the lowest taxes on gas drilling in the country.
Rhode Island’s largest source of state and local tax collections is property tax, which makes up 44.7 percent of the collections. Rhode Island allows medical marijuana, but whether it will legalize and then tax adult recreational marijuana is unclear. Governor Lincoln Chaffee indicated in a Bloomberg News interview that he may consider “whether to ‘regulate it and tax it in these tough times.’ ”
*Exemption is $921,655.
For those taking driving vacations this summer, South Carolina would be a good choice for gas tax savings -- its tax of 16.75 cents per gallon is the 48th-lowest in the nation. And if you're a South Carolina taxpayer, the state may owe you money. The IRS recently estimated that South Carolina owes taxpayers $10 million from unclaimed 2010 refunds. Better hurry -- the return filing deadline is April 15.
Since South Carolina doesn't recognize same-sex marriage, couples must make pro forma federal single returns and use that information on their state single returns.
South Dakota's tax-friendly trust laws are among the reasons it is becoming a legal tax shelter for nonresidents, as wealthy families from outside the state finding ways to stash their assets here.
With no income tax, investors in South Dakota are happy to hold on to their capital gains. But shoppers have to shell out a little more in tax than in many other states, because it's one of seven states that don't offer a sales tax break on groceries.
Tourists have long been entertained by the state's thriving music scene. High sales taxes will likely leave them singing the blues. Tennessee has the highest combined state and local sales tax rate, at 9.45 percent, according to the Tax Foundation. It doesn't tax income apart from a 6 percent levy on interest and dividends, and capital gains are exempt. Tennessee has an inheritance tax now (see the note below), but it will be phased out in 2016.
*On interest and dividend income; none on wages
**Plus a 2.75 % tax on certain sales worth $1,600.01 and up to $3,200
***Tennessee calls this an "inheritance tax," but it functions as an estate tax. The exemption is $2 million.
Texans don't pay state income tax, but some of their income tax savings gets spent on state and local sales tax, ranked 11th in the nation, at 8.15 percent. Property taxes are higher here than in a lot of other states, too, with $1,557 in per-person collections coming in at 15th in the nation. Will that always be the case? One candidate for the state’s comptroller of public accounts recently spoke about getting rid of property taxes. The state is in the middle of a drilling boom that contributed to its 2012-2013 budget surplus.
The state makes solid revenue on so-called sin taxes, including those on alcohol. Utah imposes the eighth-highest state spirits excise tax, at $12.19 per gallon, and the 13th-highest state beer excise tax, at 41 cents per gallon. It also imposes a 10 percent tax on all businesses that feature nude performance. Utah is among the growing number of states that permit same-sex couples to file joint returns for state income tax purposes.
Vermont is one of 13 states that tax Social Security income and has the highest state and local excise collections per person in the country.
A controversy surrounding the tax treatment of electronic cigarettes is raging in the Green Mountain State. A budget bill that recently preliminarily passed the state House of Representatives includes a 92 percent tax on the wholesale cost of electronic cigarettes.
*Exemption is $2.75 million
Virginia recently enacted special fees on environmentally friendly vehicles, but has kept tax rates low on tobacco. In this tobacco-rich state, the cigarette excise tax rate of 30 cents per pack ranks 49th lowest out of 50.
Last year the Virginia General Assembly passed a sweeping deal to overhaul how the state pays for transportation. This year, the legislature repealed a small part of that act -- a $64 annual fee on electric car owners, meant to ensure that all car owners contribute equally to repairing the state’s roads.
*4.3% state, 1% local; the Tax Foundation includes a “mandatory, statewide, local add-on sales tax” in the state rate.
Washington will start selling recreational marijuana for adults this year, and users should be ready to pay up. The state plans to impose a 25 percent excise tax at each stage of growing, processing and selling cannabis products. The Washington State Economic and Revenue Forecast predicted that cannabis-related sales will generate $51 million in taxes and fees for the 2015-2017 budget period. Smoking cigarettes is expensive here, too. Washington imposes the sixth-highest cigarette excise tax in the country, at $3.025 per 20-pack.
*Exemption is $2.01 million
The District of Columbia’s sales tax is the lowest in its local region for the first time in 45 years, according to the Tax Foundation. The D.C. Council (the District’s local governing body) voted last year to cut the previous 6 percent sales tax rate by a quarter of a percentage point to roll back a 2009 increase that was used to cover a budget shortfall. The rate reduction and the fact that there are no other local sales tax rates give Washington, D.C., one of the lowest combined sales tax rates in the country.
Residents may feel the pinch more in property ownership than in retail shopping. Property tax collections are some of the highest in the country, at $2,871 per person.
*Exemption is $1 million.
West Virginia taxes Social Security income, but shoppers are no longer paying sales tax on groceries after the state eliminated that tax last year. Those who didn't file a tax return for 2010 but think they might have a refund coming their way have a short time to get caught up. The IRS recently announced it has $3 million in unclaimed federal tax refunds for West Virginians. The filing deadline to get those refunds is April 15.
The Wisconsin Assembly and Governor Scott Walker recently put through a budget bill that cuts income and property taxes by more than $500 million annually. The lowest individual income tax bracket will be lowered from 4.4 percent to 4 percent. Recent data show that Wisconsin’s property tax per person ranks 12th in the country, at $1,724, according to the Tax Foundation
With no tax on income, capital gains or net corporate income, Wyoming makes up the difference in property taxes. The state has the sixth-highest property tax per person in the country, according to the Tax Foundation.