Are you considering moving to a new state in America? Or just curious where is cheaper to live across the nation? We’re taking a look into the world of state income taxes to reveal where your hard-earned money gets drained the most annually.
Don’t panic – high taxes don’t always equal a bad quality of life. Some states offer amazing public services or picturesque scenery in exchange. But if you’re focused on keeping more of your hard-earned money in your pocket, understanding state income tax and the various rates within each region is essential.
Think of this list – based on 2024 research by the Tax Foundation – as your map to sidestepping financial surprises. Whether you’re job hunting, researching retirement spots, or just geeking out about taxes, let’s consider the states where your paycheck shrinks the fastest.
1. California – The Golden State’s Tax Bite
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Top Marginal Tax Rate (additional tax paid for every additional dollar earned as income): 13.3%
Why So High? California boasts everything from beaches to mountains PLUS a hefty state budget to fund extensive social services and a large population. That translates to needing serious tax revenue. To add insult to injury, even if you move away, California can aggressively pursue “departure taxes” for years after you leave, up to 10!
2. Hawaii – Paradise Comes at a Price
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Top Marginal Tax Rate: 11%
Why So High? Island living means higher costs to import many goods. Plus, tourism is huge, but infrastructure for that and a geographically spread-out population costs money… which gets passed along. Residents end up subsidizing the very things that make Hawaii so appealing to visitors.
3. New York – Where Even Millionaires Feel the Pinch
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Top Marginal Tax Rate: 10.9%
Why So High? New York, especially NYC, has astronomically high living costs. Their progressive tax structure means higher earners pay significantly more to fund things like public transportation and schools within a densely populated state. This creates a unique situation where some wealthy residents actually pay a higher effective tax rate than they would in states with a seemingly higher top percentage, due to how those brackets work.
4. New Jersey – Not Just Famous for Boardwalks
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Top Marginal Tax Rate: 10.75%
Why So High? Its proximity to both Philadelphia and NYC translates to high housing prices and cost of living. Plus, they need serious revenue to fund those famed beaches and boardwalks! High property taxes contribute to the overall financial pressure many New Jersey residents feel.
5. Oregon – Surprising Tax Structure in the Pacific Northwest
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Top Marginal Tax Rate: 9.9%
Why So High? While Oregon lacks a sales tax, its income tax is high and kicks in at lower income levels than many states. They use that revenue to fund outdoor preservation and relatively generous social programs. This means even middle-income earners feel the pinch, not just the very wealthy.
6. Minnesota – Winter Wonderland, Taxing Too?
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Top Marginal Tax Rate: 9.85%
Why So High? Scandinavian heritage led to a focus on social programs, requiring high taxes to fund. Harsh winters also mean more money is spent on infrastructure like snow removal, contributing to the need for higher revenue. It’s a trade-off: great public services come with a significant cost.
7. Iowa – More Than Just Cornfields
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Top Marginal Tax Rate: 8.98%
Why So High? A recent income tax cut plan is SLOWLY phasing in, so that rate is deceivingly high for now. A relatively low population spread across a wide area means the cost of services is shouldered by fewer taxpayers. Less density means things like roads and power lines cost more to maintain per person compared to a highly urbanized state.
8. Vermont – Charming, But With Steep Taxes
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Top Marginal Tax Rate: 8.95%
Why So High? Vermont’s small population means fewer people to fund everything. Focus on social programs and a high cost of living (especially in those picture-perfect towns) necessitate higher taxes. Vermont attracts retirees, but healthcare needs for an older population also put significant demand on their budget.
9. District of Columbia – City Living = City Taxes
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Top Marginal Tax Rate: 8.95%
Why So High? Urban areas are expensive to run. While technically not a state, D.C. functions as one, taxing at a comparable level to fund city services for residents and a massive commuter population who put wear and tear on the system but don’t pay those same taxes.
10. Wisconsin – Cheeseheads Pay a Price
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Top Marginal Tax Rate: 7.65%
Why So High? A strong public sector union presence influences pay and benefits for government workers. That requires funding, passed along to taxpayers. And those snowy winters aren’t cheap to deal with!
11. Maine – Lobster Rolls and Lodging Taxes
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Top Marginal Tax Rate: 7.15%
Why So High? Heavy reliance on tourism means a significant chunk of their tax revenue comes from things like a hefty tax on lodging, not just resident income taxes. This somewhat softens the blow for permanent residents, but if you’re in the hospitality industry, those taxes make doing business more expensive.
12. South Carolina – Surprise, the South CAN Be Expensive
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Top Marginal Tax Rate: 7%
Why So High? This state has historically low taxes, BUT that’s changing as popular areas see costs soar due to an influx of new residents. Revenue hasn’t caught up, meaning they play a bit of catch-up, raising taxes to maintain services within a growing population.
13. Connecticut – Proximity to NYC Has a Cost
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Top Marginal Tax Rate: 6.99%
Why So High? Many high-earning commuters in New York City call Connecticut home but don’t pay NYC income taxes. This, plus high housing costs in wealthy suburbs, drives their need for significant revenue despite a mid-range percentage.
14. Idaho – Scenic, But Spendy to Live
Photo Credit: Depositphotos.com.
Top Marginal Tax Rate: 6.925%
Why So High? This number looks deceptively high because that top bracket kicks in at a surprisingly low-income level. Low property taxes somewhat offset this, but many middle-class Idaho residents find themselves paying at nearly the highest rate.
15. Nebraska – It’s Not All Farmland
Photo Credit: Depositphotos.com.
Top Marginal Tax Rate: 6.84%
Why So High? Focusing on funding education means high property taxes and income taxes play a balancing act. Cities like Omaha have higher living costs than the rural image implies, making taxes hit harder.
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With an honors degree in financial engineering, Omega Ukama deeply understands finance. Before pursuing journalism, he honed his skills at a private equity firm, giving him invaluable real-world experience. This combination of financial literacy and journalistic flair allows him to translate complex financial matters into clear and concise insights for his readers.
With an honors degree in financial engineering, Omega Ukama deeply understands finance. Before pursuing journalism, he honed his skills at a private equity firm, giving him invaluable real-world experience. This combination of financial literacy and journalistic flair allows him to translate complex financial matters into clear and concise insights for his readers.
