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SDI Productions via Getty Images
SDI Productions via Getty Images
The majority of U.S. states levy personal income tax on residents on top of what they owe to the federal government. State governments collected $344 billion from individual income taxes in 2016, according to the Tax Policy Center, making up 27% of states’ own-source general revenue.
Some states charge flat income tax rates that apply to every resident, but most states use progressive tax structures. This means that like the federal government, these states tax higher levels of income at higher state income tax rates. For people considering moving across state lines for work or after they retire, significantly higher or lower personal income tax rates can be a deciding factor.
The following states have the highest and the lowest potential personal income tax rates as of Jan. 1, 2020, according to the Federation of Tax Administrators.
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If you live in Wisconsin, you might consider negotiating for a higher salary to help offset the cost of your taxes. While the maximum rate of 7.65% only applies to those making six-figure incomes, single filers making more than $23,930 and joint filers making more than $31,910 are charged a rate of 6.27%.
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Iowans are known for their high amounts of school spirit and their high personal income tax rates. The maximum rate in Iowa is 8.53%, which applies to both joint and single filers with an income higher than $73,710.
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Though it might be one of the best destinations for an affordable ski vacation, Vermont residents have to pay high personal income taxes. The maximum rate in Vermont is 8.75%. Single filers making more than $39,600 and joint filers making more than $66,150 are charged at 6.6%.
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The Big Apple is known for its tall buildings and high cost of living, but the high personal income tax rate applies to all residents of New York state. The maximum tax rate of 8.82% applies to filers making more than seven figures. However, for an individual making the $11.80 state minimum wage, which equals $24,544.00 a year, the tax rate is 6.21%.
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While it’s not technically a state, the District of Columbia charges its residents some of the highest personal income tax rates in the country with a maximum rate of 8.95%. It also has some of the highest property taxes in the country and the second-highest cost of living overall. Parts of these taxes go toward D.C.’s infrastructure and public services, which help make it one of the safest cities in the world.
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Minnesota might be ranked the No. 1 overall place to raise a family, but this Midwestern state also levies some of the highest personal income taxes in the country. The lowest possible rate is 5.35% on single filers making less than $26,960 or joint filers making less than $39,410. For residents making above those ranges, the rate jumps to 6.80%. The highest possible rate is 9.85%.
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Oregon is an attractive place to live thanks to its photogenic landmarks and hip foodie towns. However, its personal income tax rate is steep with a maximum rate of 9.9%. And high rates don’t only apply to millionaires here. Single filers making more than $8,900 and joint filers making more than $17,800 are charged at 9.00%.
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Though New Jersey does have the lowest state property taxes in the country, its personal income tax rates are some of the highest, with a maximum of 10.75%. The median rate is 5.53% for single filers making more than $40,000 or joint filers making more than $70,000.
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It’s pricey to live on an island paradise with access to some of the best beaches in the world. Hawaii has 12 brackets, the most in the country. The state’s minimum wage is $10.10, or about $21,008 a year. Single filers making more than $19,200 and joint filers making more than $38,400 are taxed at a 7.20% rate. The highest possible tax rate is 11.00%. Hawaii is also the state with the highest property taxes. Despite the high tax rates and cost of living, Hawaii is considered the happiest state in the country.
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California has a reputation for being an amazing place to vacation but a pricey place to live. The Golden State indeed lives up to this with a maximum 13.3% income tax rate. However, this eye-popping number only applies to income of about $1 million. High rates apply across the board, though, with an 8% rate applying to single filers making more than $45,753 and joint filers making more than $91,506. The rate jumps to 9.3% for single filers making more than $57,824 and joint filers making more than $115,648.
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New Hampshire and Tennessee have weird laws structuring their tax systems. These states exclusively tax dividend and interest income rather than income from wages, with New Hampshire charging 5% and Tennessee charging 1%. Tennessee’s current system, the “Hall Tax,” is being phased out, with rates dropping one percentage point since 2017. By Jan. 1, 2021, the state will officially have zero income tax.
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Of states that do charge a flat-rate income tax, Pennsylvania has the lowest rate of 2.90%. But income tax rate alone can be misleading when it comes to determining how affordable certain states are to live in. For example, Pennsylvania has lower personal income tax rates but some of the highest real estate property tax rates in the country at 1.59%.
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North Dakota has the lowest rate in the country out of states that do levy personal income tax with a maximum progressive tax rate of 2.90%. This rate only applies to single and joint filers with an annual income of more than $433,200. The sales tax rate and real estate property tax rate for the Peace Garden State both sit around the national average.
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Alaska is one of seven U.S. states that have no personal income tax. It also does not have statewide sales taxes, though it allows local governments to charge sales taxes. It is the only state with neither personal income nor sales tax. Instead, Alaska gets more than half its total budget from oil revenue.
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Florida is another state with no personal income tax. Instead, the Sunshine State’s sales tax and the corporate income tax are the two largest general revenue sources in the state budget. In fact, Florida’s 2020 per capita average tax burden is $1,822, the second-lowest amount among all U.S. states. This might explain why it’s a popular place to retire. While the state can seem affordable overall, it is still home to some of the priciest retirement communities in the U.S.
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Nevada also has no personal income tax as well as lower-than-average sales tax and property tax. Despite this, the state has one of the highest bankruptcy filing rates in the country.
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The fourth of seven U.S. states with no personal income tax is South Dakota. The state's largest revenue source is its sales and use tax, which sits at 4.5%. This applies to all transactions in South Dakota including leasing, renting or buying products or services.
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Another state with no personal income tax is Texas. In fact, in 2019, voters approved a state constitutional amendment banning the imposition of an income tax. However, everything's bigger in the Lone Star State, including its annual budget. State sales taxes, which are imposed at a rate of 6.25%, brought in $34 billion for the state in fiscal year 2019.
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The state of Washington also has no personal income tax. And while it does have the fifth-highest sales tax rate in the country at 6.5%, it also has no corporate income taxes, attracting big businesses like Amazon, Costco, Boeing and Expedia.
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Not only does Wyoming have no personal income tax, but the state also has no corporate income tax. According to the Tax Foundation, Wyoming has the best tax climate for businesses out of every state. On top of also having low sales and property tax, Wyoming is brimming with natural beauty. It is home to some of the most beautiful places in America’s state and national parks, which attract millions of tourists each year.
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