Erin Carlyle Forbes Staff
Tax day is finally here, and with it hopefully a refund in the bank account–or if not, then at least a strategy for a better 2015. Since part of that strategy could be moving to a more tax-friendly state, we set out to find out which states offer the most favorable tax situations.
Comparing states income tax rates is a bit tricky, since taxation approaches vary widely. Many states have a graduated system — the most complicated one is Hawaii with 12 different rates for income in different brackets. Eight states charge residents the same flat percentage of their incomes regardless of how large their salaries are, including Colorado (4.63% of federal taxable income), Indiana (3.75%), and Illinois (3.3%). And there are seven states that don’t levy an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
To come up with the cleanest comparison possible, we calculated the effective tax rate for single taxpayers earning a taxable income of $50,000. Why this number? Well, it’s pretty average. From 2009 to 2013, the median American household income was $53,046, according to Census data, so it’s plausible that with some states’ standard deduction rates (which can range from $0 in Ohio to $10,250 for Wisconsin), a single-earner household making the median income might land at a taxable $50,000. We were able to perform the number-crunch thanks to 2015 tax data provided by the Washington, D.C.-based Tax Foundation, a nonpartisan think tank that tracks tax policy.
We also took a look at the tax rate at the top income bracket, and where that tax bracket is set. It turns out that only 10 states have special rates for earners raking in more than $200,000 annually: California, Connecticut, Hawaii, Maryland, New Jersey, New York, North Dakota, Ohio, Vermont, and Wisconsin–plus the District of Columbia.
But income tax alone isn’t the whole picture, since two other factors significantly affect the cost to live in a given state: sales and property taxes.“Those are certainly the big three that dominate most people’s considerations and that people care about,” said Jared Walczak, policy analyst with the Tax Foundation.
His organization compiles data and assesses what it describes as the total tax burden for individuals and businesses in each state, based on the latest figures from the Census. Because of the way property tax data is reported, the data unfortunately can’t be broken into chunks that apply only to individuals or their households. But it’s the best state-by-state reckoning we’ve found. It includes not only income, property, and sales tax, but also special taxes like real estate transfer, personal property taxes on some vehicles, and special tax district fees. Our list of Best and Worst States For Taxes is ranked with the highest burden (New York, No. 50) dead last, and the lowest total burden (Wyoming, No. 1) nabbing the top rank.
See where your state stacks up–and whether it’s time to consider a move.
Happy Tax Day.
No. 31: Hawaii
State and local tax burden: 9.60%
Effective state tax rate ($50,000 taxable income): 6.76%
Highest tax bracket: $200,000
Rate at highest tax bracket: 11.00%
Per Capita Income: $44,255