Deciding where you would like to live and raise a family can be a cumbersome task. There are many factors to consider when making such a big decision, like job opportunities, recreation options, and the quality of services like education and healthcare. One factor you don’t want to overlook is the state tax burden. While state taxes fund important services including education, healthcare, and infrastructure, paying for those services can cut into your bottom line.
States collect most of their revenue by taxing citizens’ income, sales, and property, but some states charge more than others. Find out which states charge the highest income tax and how those states compare in the total tax burden that citizens pay, the quality of services that the states provide, and the quality of life that residents enjoy.
If you missed the first part of this series, the 10 Best States for Taxes, be sure to read that before you continue.
10 Worst States for Taxes
By analyzing various data points, we’ve created a list of the 10 Worst States for Taxes. In developing this list, we used 5 rating criteria. These criteria include:
- Income Tax Rate
- Total Tax Burden
- Affordability
- Education
- Economic Health
#10 Kentucky
While most states have a graduated tax scale where those with high income pay a higher tax rate, Kentucky charges a flat income tax rate of 5%. The total tax burden including property and sales tax is 9.5%, which is close to the national average.
Kentucky ranks below average in health care and education. While high school graduation rates are higher than the national average, test scores remain low compared to other states. There are several colleges and universities in the state, but college graduation rates and educational attainment are much lower than national averages.
Kentucky’s economy is built around manufacturing, aerospace, agriculture and mining. The state also produces much of the country’s beef, corn, wheat, and soybeans. Despite a low cost of living, the poverty rate in Kentucky is nearly 33% higher than the national average. Employment is ranked 45th of the 50 states and opportunities for economic advancement are fewer than in other areas. Those factors make Kentucky the 10th worst state for taxes.
#9 Maryland
Maryland’s highest income tax bracket is 5.75% which is lower than many of the top income tax rates on this list. A couple with 100k in income can expect to be in the 5% income tax bracket. Including property and sales tax, the average Maryland resident can expect to pay 10.9% in state taxes.
Aerospace, defense, and military are important industries in the state and Maryland houses most of the nation’s top aerospace companies and defense contractors. Maryland borders the nation’s capital and houses more than 60 federal agencies. The state also employs one of the largest percentages of federal workers.
Job growth in Maryland is slightly below the national average and overall economic growth is ranked 43rd out of the 50 states. Maryland is seeing more citizens relocate to other areas, and their sky-high taxation doesn’t provide the returns that citizens should expect from their investment in the state.
#8 Connecticut
In Connecticut, the highest income tax bracket is 6.99%. A couple making 100k would be in the 5.5% income tax bracket. Total state taxes, including property and sales tax, add up to 12.6%. Both the income tax burden and the total tax burden are among the highest in the country.
In addition to high taxes, Connecticut is among the states with the highest cost of living. The affordability ranking for the state is 40th out of the 50 states.
The economy in Connecticut includes large employment in manufacturing, financial services, and bioscience. In addition, there are over 1200 digital media companies in the state including sports giant ESPN. Higher education is an important part of the economy and the state houses two dozen colleges and universities including the prestigious Yale University.
Job growth in the state is slower than the national average and more people are moving away from the state than to it. The high taxes and cost of living made Connecticut our 5th worst state for retirement in a previous article and the 8th worst state for taxes.
#7 Vermont
Vermont’s highest earners can pay up to 8.75% in state income tax while a couple with 100k in income would be in the 6.6% income tax bracket. The state’s total tax burden is 10.3%.
State tax dollars in Vermont have yielded some impressive results in infrastructure, environment, and safety. The infrastructure in Vermont is ranked the best in the nation and citizens enjoy shorter commute times and roads in better condition than the national average.
Vermont is ranked the ninth best for overall natural environment and has the lowest pollution in the nation. It is also one of the safest states to live in, violent crime rates are 47% lower in Vermont than the national average.
Vermont’s economy is the smallest of any state and the cost of doing business in the state is significantly higher than the national average. Job growth is stagnant and with a high cost of living and high taxes, Vermont is seeing fewer people move to the state.
#6 Minnesota
Minnesota has a top income tax rate at 9.85% and total tax burden of 10.80%. A couple with 100k in income would be in the 6.8% tax bracket. Despite the high taxes, Minnesota was named the second-best state to live in for 2021 by U.S. News. The state ranked above average in every rating category including health care, education, crime, natural environment, and economic opportunities.
Manufacturing, retail trade, and healthcare are among the biggest employers. Minnesota is ranked the second-best state in the nation for economic opportunity. The median household income is 13% higher than the national average and the poverty rate is over 25% lower than the national average.
While Minnesota is considered a great place to call home, the high taxes are an important factor to consider if you are thinking about moving to the state. High taxes can have a significant impact on day-to-day life especially for retirees on a fixed income.
#5 New York
New York’s top income tax rate is 8.82% and the state has the highest total tax burden at 12.7%. Despite high taxes, it is ranked the 21st best state to live in.
New York ranks above average in education at number 16. The state houses multiple top destinations for higher education including Columbia and Cornell Universities. Pre-K-12 education is less desirable as reflected by low graduation rates and test scores.
Job growth rates in New York fall far short of the national average, and unemployment is much higher than other states. Harsh winters, high cost of living, and few economic opportunities have led to more citizens leaving the state and settling in other areas. As such, New York was ranked our second worst state for retirement.
#4 New Jersey
Top earners in New Jersey can pay as much as 10.75% in income tax. A couple with 100k in income would pay 5.52% in income tax, higher than the national average but below the rates charged by neighboring states. The total tax burden including property and sales tax is 12.2%, one of the highest in the country.
New Jersey holds the top ranking for education in the U.S. The state can boast a High School graduation rate over 90% and test scores exceeding national averages. New Jersey also provides an outstanding Pre-K-12 education for its younger citizens. Another area where New Jersey stands out is the state’s Health Care rankings. The Garden State is ranked fourth best in the nation for health care based on access, quality, and public health care services.
New Jersey was on our list of the 10 worst states for retirement in part because of the high cost of living. The Garden State has one of the nation’s highest property tax rates coupled with median home price nearly 90k above the national average to make home ownership less accessible than in many other states.
While New Jersey has a positive business environment and strong employment, job growth is less than half of the national average. The state is also experiencing a negative net migration, more people are leaving the state than moving to it, which is an indicator of a poor economic outlook. Those factors combine to make New Jersey the 4th worst state for taxes.
#3 Oregon
Oregon’s highest income tax rate at 9.9%. A couple with 100k in income would be in the 8.75% tax bracket. The total tax burden, including property tax, is 10.3%. Oregon is one of five states that do not charge sales tax.
Despite the lack of sales tax, Oregon is one of the most expensive states. It is ranked 46th for affordability. It is also very expensive to purchase a home in the state with the median home price being $361,970. That is 46% more expensive than the national median home price.
Oregon is ranked 35th in education which is below the national average. The high school graduation rate is well below the national average at just 79%. Likewise, test scores also fall below the national average. Higher education fares better and has a national ranking of 23, fueled by strong state schools like The University of Oregon in Eugene.
Oregon’s economy was historically based around fishing, timber, and agriculture but trade and technological industries have evolved in recent years. International trade is a large part of Oregon’s economy and exports to foreign countries exceed $18 billion per year. Agriculture remains important to the state’s economy and Oregon is the largest producer of hazelnuts in the nation. These factors combine to make Oregon the 3rd worst state for taxes.
#2 Hawaii
It should come as no surprise, but it cost a little more to live in paradise. Hawaii’s highest earners pay an income tax rate 11%. A couple with 100k in income would be in the 8.25% tax bracket and total tax burden including property and sales tax is the third highest at 10.2%.
Hawaii was rated the least affordable state in the country. The already high cost of living is exacerbated by the nation’s highest sales tax burden at 6.65%. Home prices in Hawaii are the highest in the nation and the median home price is over $630,000. That is over 230% higher than the national average.
Hawaii’s economy is ranked 46th in the nation. Job growth is negative, and the business environment is not favorable. Tourism is the largest industry and generates the most jobs on the islands. These factors combine to make Hawaii the 2nd worst state in the U.S. for taxes.
#1 California
California has the highest income tax rate of any state at 12.3%. The state also has an additional 1% tax on those making more than $1 million which helps fund the state’s mental health services, bringing the total tax rate for the state’s highest earners to 13.3%.
Like many states, California has a progressive tax code. Those with higher incomes pay a higher percentage in taxes. A couple with 100k in income is in the 8% tax bracket and have a total state tax burden is 11%.
California is one of the most expensive states to call home. It is ranked 49th out of the 50 states for affordability. The median home price in California is the second highest in the nation at $554,886. That is almost 225% more than the median home price across the country.
In May 2018, California became the fifth largest economy in the world, surpassing the UK. California is also the most populous state, and the population is expected to grow by another 25% in the next 20 years.
Education in California varies widely based on the type. Ranked 20th overall in education, California’s higher education is the third best in the nation while it’s Pre-K-12 ranking is 40th. The high school graduation, 83%, rate falls short of the national average as do test scores.
Due to the high cost of living, high taxes, and high poverty rates for retirees, California made our list for the 10 worst states for retirement.
Partner with Meld Financial
Even in a state with a high income tax, careful planning can help you achieve your financial goals. At Meld, our team of legal, tax, and financial professionals can help you plan for retirement while working to minimize your tax burden.
Financial Fingerprint™ is a proprietary wealth management program developed here at Meld Financial during more than 30 years of managing our clients’ wealth. Financial Fingerprint™ is a personalized financial plan that is quick to assemble, easy to understand, and simple to modify as your circumstances change. This program takes taxation into account to help ensure you are on the path to your financial goals.
Contact us today to get started with your Financial Fingerprint ™.
Additional Sources:
Sources:
1 Tax rates acquired from state websites and https://taxfoundation.org/center/state-tax-policy/
https://revenue.ky.gov/Individual/Individual-Income-Tax/Pages/default.aspx
https://www.revenue.state.mn.us/income-tax-rates-and-brackets
https://www.state.nj.us/treasury/taxation/pdf/current/njtaxratesch.pdf
https://portal.ct.gov/-/media/DRS/Forms/2020/Income/CT-1040-TCS_1220.pdf
https://tax.vermont.gov/sites/tax/files/documents/RateSched-2020.pdf
https://www.oregon.gov/dor/programs/individuals/Documents/full-year_tax_tables.pdf
https://www.marylandtaxes.gov/individual/income/tax-info/index.php
https://www.ftb.ca.gov/forms/2020/2020-California-Tax-Rate-Schedules.pdf
https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf#page=57
2 Infrastructure grades reported from https://infrastructurereportcard.org/state-by-state-infrastructure/
3 Education rankings by https://www.usnews.com/news/best-states/rankings/education
4 Economy rankings by https://www.usnews.com/news/best-states/rankings/economy
Median Home prices source https://www.businessinsider.com/average-home-prices-in-every-state-washington-dc-2019-6#15-new-hampshire-290163-37
