Tax Burden by State – Full Overview
Tax burden represents the proportion of Americans’ income paid in taxes. In the United States, where you live can heavily affect how much of your annual salary goes to state coffers. That’s why knowing and understanding the tax burden by state is essential. The overall effective tax burden depends on several factors, and these are individual, property, and sales taxes. What state has the highest tax burden? Do the wealthiest Americans have the same tax burden as low-income families? Discover the answers to these questions and more in our in-depth analysis of the overall taxes by state.
Overall Tax Burden by State
A state’s total tax burden is made of three primary taxes – individual, property, and sales, which vary greatly from one place to another. Some states, for example, have no property taxes, while others don’t tax personal income. Then, the tax rates in each state vary. All of this results in fluctuations in the overall tax burden in every US state.
The top 1% of Americans that make over $553,200 a year have an effective tax burden of 7.4%. This US average is 5% lower than the average burden of 12.4% that the top 1% pay in California. It’s also by 5.5% higher than the burden of 5.5% the wealthiest 1% have in Nevada. This destination boasts the lowest tax burden by state for top earners. Those that make between $36,800 and $59,900 represent the middle 20% and have a tax burden of 9.9%. The average effective rate for the lowest 20% (less than $20,800 income) meanwhile stands at 11.4%.
In the table below, you can find the total tax rate by state for all 50 states plus the District of Columbia. You can also check out the state tax burden comparison for people of different income levels. You may be surprised to discover that the wealthiest 1% have the lowest effective tax burden compared to other income groups.
Best and Worst States for Taxes
If we rank the jurisdictions based on their total tax burden by state, Alaska has the best ranking with only 5.10%. That’s 0.64% lower than Tennessee’s 5.74%. Next comes Wyoming with its tax burden of 6.14%. Delaware (6.21%) and New Hampshire (6.84%) round up the list of top five states with the lowest overall taxes.
At the other end of the spectrum, we have New York and its tax burden of 12.79%. New Yorkers have a tax burden higher by 7.69% than that of Alaska residents. This state is among the worst for taxes of any kind, boasting the highest cigarette prices by state, for example. Hawaii, Vermont, D.C., and Maine are the other states with the highest tax burden. Their tax burdens are 12.19%, 10.75%, 10.60%, and 10.50%, respectively.
Total Taxes by State by Income Groups
The level of income that goes toward taxes is another way to define the best and worst states for taxes. In most states, the top 1% have a lower effective tax burden than the 20% who earn the least money. In Connecticut, for example, the top 1% have a tax burden of 8.1% of their income. The 20% with the lowest income, however, have a tax burden of 10.65%. The situation is even more drastic in Ohio, where the tax burdens of the top 1% and the bottom 20% are 6.5% and 7.65%, respectively. Meaning, the list of states ranked by tax burden drastically differs when the focus shifts on different income groups.
In New Hampshire (12.65%), Massachusetts (12.65%), and Illinois (12.60%), the bottom 20% have the highest tax burden. D.C. (6.3%) and Alaska (2.9%), by contrast, are the best states for those who earn the least money. California (12.4%), New York (11.3%), and Vermont (10.4%) are the worst destinations for the wealthiest 1%. The jurisdictions with the lowest overall tax rate by state for the top earners are Nevada (1.9%), Florida (2.3%), and Alaska (2.5%).
Finally, New York, Illinois, and Connecticut are the states with the highest tax burden for the middle 60% by family income. The effective tax burdens in these states are 12.5%, 12.2%, and 11.6%. We have Alaska, Delaware, and Montana at the opposite end. Their effective tax rates by state for the middle 60% of earners are 4.3%, 5.8%, and 6.7%.
State and Local Sales Tax by State
State and local sales taxes play a significant role in determining the total taxes by state. That’s why in the table below, we have the state ranking by taxes imposed on sales. Tennessee, Louisiana, and Arkansas have the highest tax burden by state in this category. Their tax burdens in this category are 9.55%, 9.52%, and 9.51%, respectively.
The lowest state and local tax burdens in 2020 were seen in Alaska, Hawaii, and Wyoming. Residents in these states have a combined sales and local tax burden of 1.76%, 4.44%, and 5.33%. Oregon, New Hampshire, Montana, and Delaware meanwhile have no such taxes at all.
The difference in the sales tax burden between Tennessee and the states without such taxation is 9.55%. Yet, Tennessee is among the 10 states with the lowest tax burden thanks to its exceptionally low property and individual income taxes. Hawaii, similarly, is one of the worst states for taxes despite having a low sales tax burden.
Income Tax by State
Another essential factor that affects the state tax burden rankings is the income tax. Before analyzing the states with the highest taxes in this category, we must mention the nine states without income tax whatsoever — Washington, Nevada, Texas, Florida, South Dakota, Wyoming, and Alaska. Tennessee and New Hampshire also belong here as their income taxation is minimal. So, most residents there end up paying no income tax.
North Dakota (0.88%), Arizona (1.41%), and Louisiana (1.44%) have the lowest income tax by state. D.C. (4.88%), New York (4.81%), and Oregon (4.05%) impose the highest taxation burden on individual income. So, it makes sense that D.C. and New York are among the 10 jurisdictions with the worst tax burden by state.
In the table below, you can also see the state and local income tax collections per household for 2016. Families in North Dakota paid the lowest average of $1,120, while those in New York paid the highest average of $8,032.
Property Tax Rates by State
When calculating the overall tax burden of a destination, it is vital to analyze the taxation on property. Again, the property taxes by state vary depending on local regulations. It is interesting to note how Hawaii has the lowest taxation on median owner-occupied homes of 0.27%. This US destination is among the ones with the worst tax burden by state. New Jersey has the highest property tax rates on owner-occupied homes of 2.47%. Still, residents of D.C. pay the highest property taxes per capita of $3,500. This amount is significantly larger than the $582 paid in property taxes per capita in Alabama.
New Hampshire, Virginia, and New Jersey are the states with the highest property taxes as a percentage of the personal income. The share from the residents’ personal income that goes to tax on property in the states is 5.66%, 5.14%, and 5.05%, respectively. Alabama, Oklahoma, and Arkansas have the lowest property tax burden by state. In these states, taxes on properties represent 1.44%, 1.67%, and 1.78% of the individual income.
Four out of the five states with the lowest property tax burden are among the 10 best states ranked by taxes. Besides Alabama and Oklahoma, Delaware and Tennessee belong in this group, too.
Red vs. Blue States Taxes Ranked
Blue states have a higher average effective total tax burden than red states. The average among the Democrat states is 9.24%, while Republican states have an average tax burden of 8.10%. The five destinations with the highest taxes by state are all blue states. Those are New York, Hawaii, Maine, Vermont, and D.C. Among the five states with the lowest overall taxes, three are red (Alaska, Tennessee, Florida) and two are blue (Delaware, New Hampshire).
The Bottom Line
With the tax burden by state drastically varying, your place of residence significantly affects your finances. Residents in New York and Hawaii have it the worst when it comes to the total state tax burden. People living in Alaska, Delaware, and Tennessee, by contrast, deal with the lowest overall tax burden in the USA. Meaning, those who are looking for tax-friendly states should consider moving to one of these jurisdictions. After all, the difference in the tax burden between the worst and the best state is nearly 8%, which can make or break a business or a household.