One of the biggest tax bills that most people pay is the federal income tax calculated on the Internal Revenue Service (IRS) Form 1040 in April of each calendar year. Three other major taxes come from your state or locality: state income taxes, sales taxes, and property taxes. The way that each type of tax is calculated is complicated; factors such as your income level, marital status, and county of residence affect your tax rates.
Simple, apples-to-apples comparisons of how much total tax you’ll pay living in one state versus another are impossible. And since you pay state income tax on the money you earn, sales tax on the money you spend, and property tax on the value of any real estate you might own, you can’t simply add up the average rates in each state and rank them from lowest to highest.
However, if you’re trying to choose where to live or to locate your business—and taxes are a factor in your decision—then the tables below can give you a big picture to use as the starting point for more research on how taxes in each state would impact your unique financial situation.
Key Takeaways
- Aside from federal income tax, three other major taxes come from your state or locality: state income taxes, sales taxes, and property taxes.
- Since you pay state income tax on the money you earn, sales tax on the money you spend, and property tax on the value of any real estate you might own, you can’t simply add up the average rates in each state and rank them from lowest to highest.
- But at the high and low ends, there are large differences in state tax burdens that could have a real impact on your ability to make ends meet in the short run and to save for the long run.
Income Tax
State income tax rates are only simple in the few states that either charge no income tax or charge a flat rate no matter what you earn. In other states, the income tax rate you’ll pay depends on what income bracket you fall into, and each state sets its own brackets at different income levels. In some states, our research has found that most taxpayers in the lower and middle classes pay the top rate; in others, you have to earn more than $1 million to pay the highest rate.
The charts below simply list the income tax rate you would pay in each state if you earned the median income in 2022, as calculated by the U.S. Census Bureau. Your state tax bill will also depend on any exemptions, deductions, and credits you qualify for; and states differ on what tax breaks they offer and who qualifies.
Here are the top marginal individual income tax rates for all 50 states and the District of Columbia.
Sales Tax
Determining which states have the worst sales tax burden is a little tricky because the actual sales tax rate you’ll pay depends on which city you live in. Still, cities build their sales tax rates on top of state sales tax rates, so it’s useful to know the base rate you’ll pay to make purchases anywhere in the state.
The chart below shows all the states and the District of Columbia in terms of their sales tax burdens and average local sales tax rate.
Property Tax
If you plan to own a home, then you’ll want to know what the property tax rate is in the places where you’re considering living. But property taxes are established at the local level, not the state level. In some areas, you can cross the street into a different town and pay a dramatically different rate despite living in the same general area with similar amenities and quality of life.
Property taxes are influenced by factors such as homeowners’ exemptions, how often property values are reassessed, and annual caps on property tax increases, such as California’s 1% annual cap under Proposition 13.
Also, in some jurisdictions, homeowners’ exemptions are only available to taxpayers who fall below an income threshold and/or who qualify as senior citizens; others give these exemptions to any owner who occupies the property as their primary residence.
Other Factors
These tables don’t account for the significant percentage of taxes that many people pay to states other than their state of residence. We pay these taxes when we travel or when we earn income in another state.
Another factor to consider is that while you might pay higher taxes in one state compared with another, you also might be able to earn more in the higher-taxed state. The question is whether you’ll earn enough extra to make up for, or exceed, the cost of the higher tax burden.
Also, while you initially might be drawn to a state that has no income tax or no sales tax, it’s important to look at the big picture: States often compensate for lower taxes in one area with higher taxes in another. Government-provided services have to be funded somehow.
Are Low Tax Rates Always a Good Thing?
You might assume that while higher taxes are a pain, they mean that you’re getting more and better public services for your dollars: smoother roads, higher-ranking public schools, and more beautiful parks.
But just because government officials have lots of tax dollars at their disposal doesn’t mean that they’re spending them wisely. Similarly, low tax rates don’t necessarily mean that public services are lacking. Politicians might be spending tax dollars carefully in those jurisdictions, and they might have turned over to the private sector certain services that the government normally provides.
As with any other purchase, you have to do more research to see what you’re actually getting for your money, because a higher price (or in this case, a higher tax bill) doesn’t always mean better quality and a lower price doesn’t always mean inferior quality.
Which States Have the Highest and Lowest Income Taxes?
As of Jan. 1, 2022, states with the top marginal individual income tax rates are California (13.30%), Hawaii (11.00%), New York (10.90%), New Jersey (10.75%), and Washington D.C. (10.75%). States with the lowest individual income tax rates are Indiana (3.23%) and Pennsylvania (3.07%). However, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming have no state income tax, while New Hampshire only taxes interest and dividends income and Washington only taxes capital gains income.
Which States Have the Lowest and Highest Property Tax Rates?
As of 2022, Hawaii (0.28%), Alabama (0.41%), and Colorado (0.51%) are the states with the lowest effective real-estate tax rates. The states that have the highest property taxes are New Hampshire (2.18%), Illinois (2.27%), and New Jersey (2.49%). How do the different rates translate into an annual property tax bill? Take a home valued at $217,500: In Hawaii, the homeowner would pay $606 a year in property taxes, while in New Jersey, the homeowner would pay $5,419.
Are There Any States That Don’t Charge Sales Taxes?
Only five states don’t have statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Besides state-level sales taxes, 38 states have local sales taxes. Indeed, Alaska lets localities charge local sales taxes. The states with the lowest average combined state and local sales tax rates are Alaska (1.76%), Hawaii (4.44%), and Wyoming (5.22%), while those with the highest average combined state and local sales tax rates are Arkansas (9.48%), Tennessee (9.547%), and Louisiana (9.55%).
The Bottom Line
Many states impose similar tax burdens on their residents; if you’re considering living in these states, then taxes are unlikely to be a deciding factor. But at the high and low ends, there are large differences in tax burdens that could have a real impact on your ability to make ends meet in the short run and to save for the long run. While tax rates may not be your first or even fifth consideration, sometimes they’re the tiebreaker in a close decision.