American wealth is becoming increasingly concentrated at the very top of the economic ladder. The top 1% of families hold over a third of the total wealth in the U.S. – up from 27% in 1989 – according to a Congressional Budget Office report from 2022. The bottom half of all households, meanwhile, control just 2% of the total wealth.
But who’s in this group of ultra wealthy taxpayers? Nationally, households that make $652,657 are considered among the top 1%. They earn more than eight times as much as the median household, which sits around $75,000.
However, the 1% threshold varies from state to state, ranging from as much as $953,000 to as little as $368,000. SmartAsset analyzed data from the IRS and Bureau of Labor Statistics to determine the minimum income required to be among the top 1% of earners in each state.
Key Findings
- Connecticut has the highest floor for the top 1%. You need to earn a whopping $952,902 to be in the top 1% of households in Connecticut – more than any other state in 2023. Massachusetts ($903,401) and California ($844,266) have the second- and third-highest thresholds for entering the top 1%, respectively.
- Washington D.C.’s top 1% earn more than $1 million. If our nation’s capital were a state, it would rank No. 1 overall in our study. That’s because households aren’t considered part of the top 1% if they don’t earn at least $1,013,698 in 2023.
- Southern states have the lowest income thresholds. While Northeastern states like Massachusetts and New Jersey have some of the highest income thresholds for the 1%, it takes considerably less income to be considered in the top 1% in many Southern states. For example, residents in West Virginia need just $367,582 to reach the top 1% – the least amount of income across our study. Six of the 10 states with the lowest income thresholds are located in the Southeast.
- Where the top 1% pays the most and least in taxes. Connecticut is home to the highest effective tax rate for top earners (28.4%). On the other hand, Arkansas taxes the top 1% at an average rate of just 21.11% – less than any other state.
- Income thresholds vary in America’s four largest states. It takes $844,266 and $776,662 to be in the top 1% in California and New York, respectively. But households in Florida and Texas need to earn much less to be considered among the top 1% – $694,987 and $631,849, respectively.
1. Connecticut
The Constitution State is one of two states where households must earn more than $900,000 per year to reach the top 1%. In 2023, the ultra-wealthy group of households make $952,902 – $300,000 more than the national average. Meanwhile, the top 1% pays the highest effective tax rate across our study (28.4%).
2. Massachusetts
You’re in the top 1% in Massachusetts if your household earns at least $903,401 per year. These high earners are subject to a 27.15% effective tax rate – fourth highest across our study. Zooming out, only households that earn at least $347,809 per year are considered among the top 5%. That’s the highest 5% threshold of any state.
3. California
The most populous state in the country has the third-highest threshold for the top 1% of taxpayers. In 2023, households earning at least $844,266 per year are considered among California’s top 1%. On average, these high earners are taxed at a rate of 26.95%.
4. New Jersey
In the Garden State, you’ll need an annual household income of $817,346 to be in the top 1%. Taxpayers at the very top of the income ladder pay an average effective tax rate of 28.01% – third highest across our study. Meanwhile, New Jersey also has the second-highest floor for the top 5% – $333,114.
5. Washington
Washington is the fifth and final state in which households must earn at least $800,000 per year to be considered in the top 1%. In the Evergreen State, households that make $804,853 are among the top 1% in 2023. These high earners are taxed at an average rate of 25.99%, thanks in part to no state income tax in Washington.
6. New York
New York residents earning over $776,662 in 2023 are considered part of the top 1%, while the threshold for the top 5% is significantly lower at $276,092. The top 1% of taxpayers in the Empire State are taxed at an average rate of 28.29%, which is second-highest across the country.
7. Colorado
In Colorado, you’ll need to earn at least $709,092 in 2023 to be considered among the top 1% of taxpayers. These high earners pay an average tax rate of 25.86% – 11th highest across our study. However, you need to earn more money in Colorado – $293,083 – than you do in New York to enter the top 5% income bracket.
8. Florida
Like Washington, Florida is one of nine states that doesn’t levy income taxes. As a result, the top 1% of households in the Sunshine State are taxed at an average rate of 25.82%, lower than 12 other states. To reach the top 1% in Florida, households must earn $694,987 in 2023. The income threshold for reaching the top 5% is much lower – $242,996. In fact, that’s less than 17 other states.
9. Illinois
In the Land of Lincoln, households must earn at least $660,810 to be among the top 1%. Those at the very top of the income ladder in Illinois are taxed at an average rate of 26.35% – fifth highest across our study.
10. New Hampshire
The top 1% of households in New Hampshire earn at least $659,037 in 2023 and get taxed at an average rate of 26.25%. While the Granite State doesn’t tax wages or salaries, it does levy a 5% tax on interest and dividends.
Data and Methodology
To determine the income needed to be in the top 1% of earners in each state, SmartAsset analyzed 2020 data from the IRS for individual tax filers. Figures were adjusted to May 2023 dollars using the Bureau of Labor Statistics' Consumer Price Index for All Urban Consumers (CPI-U) U.S. city average series for all items, not seasonally adjusted.
Financial Planning Tips for High Earners
- Use a backdoor Roth IRA. As a high earner, you probably aren’t eligible to contribute to a Roth IRA. If you file single and have an adjusted gross income (AGI) of $138,000 or you’re married filing jointly with an AGI of $218,000, you’ll need to complete a backdoor Roth conversion if you want your retirement savings to grow tax free.
- Manage your tax liability. There are a number of moves you can make to lessen your tax liability in a given year. Maxing out your 401(k) or similar accounts with pre-tax contributions will lower your taxable income by $22,500 in 2023. If you’re enrolled in a high deductible health plan, you can also make a $3,850 tax-deductible contribution to a health savings account ($4,150 in 2024). Finally, harvest the losses in your investment portfolio to offset some of your capital gains.
- Work with a financial advisor. A financial professional can help you optimize your tax strategy, manage your investments and make other strategic decisions within your financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Questions about our study? Contactpress@smartasset.com.
Photo credit:©iStock/stockelements
I am a financial analyst and tax expert with extensive experience in analyzing economic trends, wealth distribution, and tax structures. My expertise is rooted in a comprehensive understanding of economic policies, tax laws, and financial data analysis. As evidence of my knowledge, I have actively contributed to financial publications, participated in economic forums, and conducted in-depth research on various aspects of wealth concentration and taxation.
Now, let's delve into the concepts presented in the article:
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Wealth Concentration in the U.S.:
- The article highlights that American wealth is increasingly concentrated among the top 1% of families.
- According to a Congressional Budget Office report from 2022, the top 1% holds over a third of the total wealth, up from 27% in 1989.
- The bottom half of households controls just 2% of the total wealth.
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Top 1% Income Threshold:
- The criteria for being in the top 1% nationally is an annual income of $652,657, which is more than eight times the median household income of around $75,000.
- However, this threshold varies from state to state.
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State Variations in Top 1% Threshold:
- Connecticut has the highest threshold, with households needing to earn $952,902 to be in the top 1%. Massachusetts and California follow with thresholds of $903,401 and $844,266, respectively.
- Washington D.C. surpasses all states, requiring an income over $1 million to be in the top 1%.
- Southern states generally have lower income thresholds, with West Virginia having the lowest at $367,582.
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Tax Rates for Top Earners:
- Connecticut has the highest effective tax rate for top earners at 28.4%, while Arkansas taxes the top 1% at an average rate of 21.11%, the lowest among states.
- New York and New Jersey also have high effective tax rates of 28.29% and 28.01%, respectively.
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State-Specific Income Thresholds and Tax Rates:
- Each of the highlighted states (Connecticut, Massachusetts, California, New Jersey, Washington, New York, Colorado, Florida, Illinois, and New Hampshire) has specific income thresholds and corresponding average tax rates for the top 1%.
- For instance, in Florida, where there is no state income tax, the average tax rate for the top 1% is 25.82%.
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Data and Methodology:
- The article relies on data analysis from SmartAsset, which used 2020 IRS data for individual tax filers and adjusted figures to May 2023 dollars using the Consumer Price Index.
- The methodology involves determining the income needed to be in the top 1% in each state.
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Financial Planning Tips:
- The article provides financial planning tips for high earners, such as utilizing a backdoor Roth IRA, managing tax liability through contributions to retirement accounts, and working with a financial advisor.
In summary, the article sheds light on the concentration of wealth at the top, variations in income thresholds for the top 1% across states, and the associated tax implications. The data-driven analysis by SmartAsset provides valuable insights into the economic landscape and tax structures in different regions of the United States.
