"Location, location, location" applies to more than housing. Where you live can help or hinder your ability to make ends meet. A myriad of taxes—property, license, state and local sales, property, inheritance, estate and excise taxes on gasoline—eat away at your disposable income. The biggest tax ticket citizens face after paying the Internal Revenue Service is the one their state presents. 41 states and the District of Columbia levy a personal income tax. Weighing the tax landscape against your financial picture lets you stretch your dollars.
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10 states with the highest personal income tax rates
A comparison of 2019 tax rates compiled by the Federation of Tax Administrators ranks California as the top taxer with a 12.3% rate, unless you make more than $1 million and have to pay 13.3%.
The top 10 highest income tax states for 2019 are:
- California 13.3%
- Hawaii 11%
- Oregon 9.9%
- Minnesota 9.85%
- Iowa 8.98%
- New Jersey 8.97%
- Vermont 8.95%
- District of Columbia 8.95%
- New York 8.82%
- Wisconsin 7.65%
Each of these states has a personal income tax floor, deductions, exemptions, credits and varying definitions of taxable income that determine what a citizen actually pays.
10 states with the lowest personal income tax rates
Only seven states have no personal income tax:
- South Dakota
Tennessee and New Hampshire limit their tax to interest and dividend income, not income from wages.
Among the states that tax income, Pennsylvania's 3.07% flat tax ranks the Keystone State as the 10th lowest in the nation for 2019.
Low personal income tax rates can be misleading; a lack of available tax deductions, for example, can raise the effective rate you pay. The Retirement Living Information Center says figuring your total tax burden, including sales and property taxes, gives you a more accurate reading on affordability, especially if you're on a fixed income.
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Property tax falls under local, not state, jurisdiction. The most expensive property tax counties in terms of percent of income, according to the Tax Foundation's analysis of the U.S. Census Bureau's 2009 American Community Survey were:
- Passaic County, New Jersey 8.79%
- Essex County, New Jersey 8.27%
- Union County, New Jersey 8.13%
These Louisiana parishes hold the least expensive spots for property tax as a percent of income:
- Grant Parish 0.26%
- Assumption Parish 0.26%
- Vernon Parish 0.25%
Sales tax takers and leavers
If you're a consumer, you'll want to consider that all but five states—Oregon, New Hampshire, Montana, Delaware and Alaska—rely on sales tax for revenue.
- Of these, Alaska also has no income tax, thanks to the severance tax it levies on oil and natural gas production.
- 37 states, including sales-tax-free Alaska and Montana, allow local municipalities to impose a sales tax, which can add up.
- Lake Providence, Louisiana has the distinction of most expensive sales tax city in the country in 2019: a 12% combined state and city rate.
The top five highest total sales tax states as ranked by the Tax Foundation for 2019 were (combination of state and average local sales tax):
- Louisiana 9.98%
- Tennessee 9.46%
- Arkansas 9.30%
- Alabama 9.01%
- Washington 8.92%
Residents of these states pay the least in sales taxes overall:
- Alaska 1.78%
- Oregon 0%
- Delaware 0%
- Montana 0%
- New Hampshire 0%
Combined sales and income tax leaders
The Tax Foundation interprets individual tax burden by what taxpayers actually spend in local and state taxes, rather than report these expenses from the state revenue perspective used by the Census Bureau. Its State and Local Tax Burden Rankings study reported that Americans paid an average rate of 9.9% in state and local taxes in 2012.
According to the foundation, the five highest state-local tax states were:
- New York 12.7 %
- Connecticut 12.6%
- New Jersey 12.2%
- Illinois 11.0%
- California and Wisconsin 11.0%
The same states have ranked as the top three consistently since 2005, according to the foundation.
Although taxes may not be the first thing you consider when deciding where to live, knowing the tax situations of the locations you're considering for a move could help you save in the long-run, especially when retiring.