Receiving your first paycheck is a significant milestone for most individuals, symbolizing a step into adulthood even for young earners. However, this excitement can be dampened when a considerable portion of the income is withheld for federal and state income taxes. While federal taxes are uniform across the nation, each state sets its own income tax rates, leading to a variety of tax policies. Surprisingly, eight states do not impose any income tax at all.
**States with High Income Tax Rates**
Certain states stand out for their high income tax rates, making residents feel the financial burden more acutely. Among the most notable are:
1. **New Jersey**: Known for its high income tax rates, New Jersey imposes a 10.75% tax on top earners, with a maximum corporate income tax rate of 9%.
2. **New York**: Residents of the Empire State face a 10.9% income tax rate, applicable to individuals with an AGI over $1,077,550 and couples earning over $2,155,350.
3. **California**: The Golden State’s top income tax rate is 12.3%, with an additional 1% surcharge for the highest income bracket.
4. **Hawaii**: Living in paradise comes at a cost, with Hawaii taxing individuals with an AGI over $200,000 and couples over $400,000 at an 11% rate, along with a high state and local tax burden.
5. **Oregon**: Despite not being renowned for high living costs, Oregon has one of the highest income tax rates in the country, reaching up to 9.9%.
**States with No Income Tax**
On the flip side, some states offer relief by not charging any income tax. These states, however, often compensate for the lost revenue through high sales taxes. Notable examples include:
1. **New Hampshire**: Residents of New Hampshire enjoy the absence of income and sales taxes, making property tax the primary concern.
2. **Alaska**: Alaska stands out as the best state for personal taxes, with no income or sales tax burdens.
Understanding the nuances of state income tax rates can help individuals make informed decisions about where to reside and how to manage their finances effectively.
In Florida, there is no income tax, and there’s also no state-based sales tax (unlike other states). Local sales tax still exists. However, the average rate is 1.76% — still better than what you’d find in most other states. The Sunshine State is one of the most popular places to live in the country — and its no income tax policy may be one of the top reasons. However, there is a 7.02% sales tax in Florida, which is fairly high compared to the rest of the country.
Living in Nevada, the Silver State, can be enjoyable, whether you love the great outdoors or its nightlife. Regardless of who you are, you can benefit from no income tax in Nevada. On the downside, you will have to pay a sales tax of 8.24%. However, there’s more good news: property tax rates are also fairly low at 0.59%.
South Dakota, famous for Mount Rushmore, proudly joins the cohort of states with no income tax. However, it does have a decent sales tax, with an average combined rate of 6.11%. While that’s higher than the national average, it’s better than many other states that refrain from charging an income tax.
While Tennessee does not have an income tax, it does have a high sales tax. The state rate is 7%, while the local rate differs depending on the city. The average combined rate for state and local sales tax is 9.55%. That’s one of the highest combined rates in the country.
The Lone Star State, Texas, may be one of the most popular options for workers trying to avoid income tax. There’s no income tax in Texas, but residents will have to pay up when it comes to sales tax. Texas charges a state-wide 8.20% sales tax, which is fairly high. The state is also known for high property tax rates.
Washington, known as the Evergreen State, gets its nickname from its lush forests — but it might also be an inside joke for all the money its residents save by not paying income tax. Plus, there’s no corporate income tax. However, Washington residents will still have to pay a 6.5% sales tax. That’s not terrible, but not as low as some other states.
Wyoming is another state that has low taxes, on top of its beautiful views. There’s no income tax in the Cowboy State, and the sales tax is only 5.44%. That’s a huge shift from other no-income-tax states that make up the revenue difference by charging a high sales tax. One thing that makes Wyoming stand out is that they also don’t charge a corporate income tax.
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