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States with the lowest and highest taxes

Updated February 2020

Scouting out a location for your business? The state where you operate has a major impact on how much state income tax you pay.

Continue reading to identify the states with the lowest and highest taxes.

How does your state affect your income taxes?

Your income — not your state — determines the federal income tax you owe. But depending on where you live, federal income tax may not be the only type of income tax you owe.

You may also have to pay state income tax, a type of tax levied by state governments, not the federal government. Most states have a progressive tax system. The more you earn, the more you pay in state income taxes.

Forty-three states impose state income taxes. Of the nine states that don’t impose state income tax on wages — Tennessee and New Hampshire — they do collect tax on dividends and interest. So you can imagine, the states with the lowest and highest taxes have very different tax rates.

What states have no income tax?

Seven states currently levy no state income tax:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

What states have the lowest income tax?

Many more states have top tax rates of under five percent. Some of these use a progressive tax system. Others levy a fixed tax rate at all income levels. Here are the rates for 2020:

  • North Dakota: 1.1 to 2.9 percent
  • Pennsylvania: 3.07 percent
  • Indiana: 3.23 percent
  • Michigan: 4.25 percent
  • Arizona: 2.59 to 4.50 percent
  • Kansas: 3.1 to 5.7 percent
  • Colorado: 4.63 percent of federal taxable income with modification
  • New Mexico: 1.7 to 4.9 percent
  • Illinois: 4.95 percent
  • Ohio: 2.85 to 4.80 percent

What states have the highest income tax?

Below are the 10 states with the highest state income tax rates in 2018:

  • California: 1 to 13.3 percent
  • Hawaii: 1.4 to 11 percent
  • Oregon: 5.0 to 9.9 percent
  • Minnesota: 5.35 to 9.85 percent
  • Iowa: 0.33 to 8.53 percent
  • New Jersey: 1.4 to 10.75 percent
  • Vermont: 3.35 to 8.75 percent
  • Washington, D.C.: 4.0 to 8.95 percent
  • New York: 4.0 to 8.82 percent
  • Wisconsin: 4.0 to 7.65 percent

Do people in states with the highest income tax rates have the highest tax burden?

Not always. This is because your total tax liability depends on more than federal and state income tax. It also includes property tax, sales tax, and other local taxes.

For example, Texas levies no state income tax, but the statewide average property tax rate is 1.86 percent. This is the sixth-highest property tax rate of any state. Compare this with Louisiana, which has a state income tax rate of anywhere from 2 to 6 percent. But certain parishes pay no more than 0.25 percent in property tax. So you could end up paying more in total taxes in a low-tax state depending on other taxes imposed. You also have to consider any deductions that could reduce the tax you owe.

As a result, you shouldn’t decide where to work based on the states with the lowest and highest taxes. But it is one way to gauge the cost of working in a certain state versus another.

States with progressive income tax systems

The United States uses a progressive federal tax system, which applies higher tax rates as your income increases. 32 of 50 states, plus the District of Columbia, follow the federal example and employ their own version of a progressive income tax system. However, the state progressive tax rates are set at much lower percentages compared to the federal income tax brackets.

  1. Alabama: 2.0 to 5.0 percent
  2. Arizona: 2.59 to 4.50 percent
  3. Arkansas: 2.0 to 6.6 percent
  4. California: 1.0 to 13.3 percent
  5. Connecticut: 3.0 to 6.99 percent
  6. Delaware: 2.2 to 6.6 percent
  7. Georgia: 1.0 to 5.75 percent
  8. Hawaii: 1.4 to 11 percent
  9. Idaho: 1.13 to 6.93 percent
  10. Iowa: 0.33 to 8.53 percent
  11. Kansas 3.1 to 5.7 percent
  12. Louisiana: 2.0 to 6.0 percent
  13. Maine: 5.8 to 7.15 percent
  14. Maryland: 2.0 to 5.75 percent
  15. Minnesota: 5.35 to 9.85 percent
  16. Mississippi: 3.0 to 5.0 percent
  17. Missouri: 1.5 to 5.4 percent
  18. Montana: 1.0 to 6.9 percent
  19. Nebraska 2.46 to 6.84 percent
  20. New Jersey: 1.4 to 10.75 percent
  21. New Mexico: 1.7 to 4.9 percent
  22. New York: 4.0 to 8.82 percent
  23. North Dakota: 1.10 to 2.9 percent
  24. Ohio: 2.85 to 4.8 percent
  25. Oklahoma: 0.5 percent to 5.0 percent
  26. Oregon: 5.0 percent to 9.9 percent
  27. Rhode Island: 3.75 to 5.99 percent
  28. South Carolina: 0 to 7 percent
  29. Vermont: 3.35 percent to 8.75 percent
  30. Virginia: 2.0 to 5.75 percent
  31. West Virginia: 3.0 to 6.5 percent
  32. Wisconsin: 4.0 to 7.65 percent
  33. District of Columbia: 4.0 to 8.95 percent

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Business Insights and Ideas does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation..