Which States Have the Most Progressive Income Taxes? | Tax Foundation (2024)

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Which States Have the Most Progressive Income Taxes? | Tax Foundation? ›

Twenty-one states and the District of Columbia have progressive rate structures that rise after $25,000. California, New Jersey, and Vermont have the most progressive rate structures by a wide margin.

Nevada, South Dakota, and Wyoming have no corporate or individual income tax (though Nevada imposes gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.

In 2020, the average American contributed 8.9% percent of their income in state taxes. Alaska had the lowest average overall tax burden – measured as total individual taxes paid divided by total personal income – at 5.4%, followed by Tennessee (6.3%), New Hampshire (6.4%), Wyoming (6.6%) and Florida (6.7%).

The overall federal tax system is progressive, with total federal tax burdens a larger percentage of income for higher-income households than for lower-income households.

States that have no income tax aren't excessively wealthy and benevolent. They simply have a different structure for raising revenue. With no income tax dollars coming in, these states must get that revenue from other sources. Typically, this translates to higher sales taxes, property taxes and/or gasoline taxes.

All of the data below comes from the Census Bureau's 2021 1-year American Community Survey (ACS) Estimates. Hawaii has the lowest property tax rate in the U.S. at 0.27%. The Aloha state has a home median value of $722,500.

MoneyGeek's analysis found that Wyoming is the most tax-friendly state in America, followed by Nevada, Tennessee, Florida and Alaska. States that received a grade of A all share something in common: no state income tax. Washington and South Dakota — which both received a B — also have no state income tax.

Alaska had the lowest tax burden in the U.S. in 2021, though it was also one of the least affordable states to live in.

What is the US most progressive income tax? ›

In the U.S., the federal income tax is progressive. There are graduated tax brackets, with rates ranging from 10% to 37%. In 2022, if you're single and have $15,000 of taxable income, you're in the 12% tax bracket, while if you're single and have taxable income of $600,000, you're in the 37% tax bracket.

But a new study on inequality by researchers at the Organization for Economic Cooperation and Development (OECD) in Paris reveals that when it comes to household taxes (income taxes and employee social security contributions) the U.S. "has the most progressive tax system and collects the largest share of taxes from the ...

States with progressive tax structures

Most states and the District of Columbia tax income much the way the federal government does: They tax higher levels of income at higher state income tax rates. State income tax rates tend to be lower than federal tax rates. Many range between 1% and 10%.

Other states with a flat income tax include Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Michigan, Mississippi, New Hampshire, North Carolina, Utah, and Washington.

Examples of progressive tax include investment income taxes, tax on interest earned, rental earnings, estate tax, and tax credits. The opposite of the progressive system is the regressive tax rate where tax liability reduces as the taxable amount increases.

Texas has such regressive taxes because it largely depends on its sales tax for revenue. Texas' state sales tax rate of 6.25% is the 13th highest in the union, and local governments can charge an additional 2% if they want, resulting in a total sales tax of up to 8.25%.

Florida makes money by collecting sales taxes, documentary stamp taxes, insurance taxes, corporate income taxes, property taxes, and charges for services offered by the government.

The Texas Constitution forbids personal income taxes. Instead of collecting income taxes, Texas relies on high sales and use taxes. When paired with local taxes, total sales taxes in some jurisdictions are as high as 8.25%. Property tax rates in Texas are also high.

How Florida Has No Income Tax. In 1968, the Florida Constitution was ratified to prevent the state from collecting an income tax. And the state constitution protects taxpayers from having the state impose new taxes or raise them.

Alaska. Alaska is the most tax-friendly state for retirees because it has no state income tax or tax on Social Security.

Which state has lowest property tax for seniors? ›

Unfortunately, there are no states without a property tax. Property taxes remain a significant contributor to overall state income. Tax funds are used to operate and maintain essential government services like law enforcement, infrastructure, education, transportation, parks, water and sewer service improvements.

Iowa. This state topped the list from MoneyRates, tied with West Virginia, scoring points for nursing care capacity, a strong economy, and a low crime rate. Social security benefits are not taxed by the state, and beginning in 2023, retirement income is exempt for taxpayers over age 55.

1. New Jersey. New Jersey earns the top spot as highest property taxes not only in property tax rate, which is over the 2% mark, but in the actual dollars spent in property taxes; here the average home value is the highest on the list.

New York has the highest state income tax burden out of any other state. In 2020, the state collected income taxes that amounted to 4.7% of per capita personal income, or nearly $3,500 per person. Not far behind are Maryland and Washington, DC.

For the 2022 tax year, 11 states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah and Vermont. All other states and the District of Columbia do not tax the payments.

Some of the most popular countries that offer the financial benefit of having no income tax are Bermuda, Monaco, the Bahamas, and the United Arab Emirates (UAE). There are a number of countries without the burden of income taxes, and many of them are very pleasant countries in which to live.

In calendar year 2020 (the most recent data available), New Jersey had the highest effective rate on owner-occupied property at 2.21 percent, followed by Illinois (2.05 percent) and New Hampshire (1.96 percent).

Where can I live comfortably on $40 000 a year? ›

Among the countries with the lowest tax rates in the world are Malta, Cyprus, Andorra, Montenegro and Singapore. Aside from zero income tax, in Antigua and Barbuda, individuals are also free from paying taxes on wealth, capital gains, and inheritance.

Though Texas has no state-level personal income tax, it does levy relatively high consumption and property taxes on residents to make up the difference. Ultimately, it has a higher effective state and local tax rate for a median U.S. household at 12.73% than California's 8.97%, according to a new report from WalletHub.

1 High-income taxpayers pay an even greater share of income taxes in states with more progressive systems, including California, Delaware, Idaho, Maine, Rhode Island, South Carolina, and Vermont.

Disadvantages of a Progressive Tax

Critics of progressive taxes consider them to be a disincentive to success. They also oppose the system as a means of income redistribution, which they believe punishes the wealthy, upper class, and even the middle class, unfairly.

Social Security benefits are progressive: they represent a higher proportion of a worker's previous earnings for workers at lower earnings levels.

Reduces Burden on Poor

A progressive tax ensures that those earning more pay a higher percentage than those at the bottom of the income spectrum. This allows the government to reduce taxes on the poor, whilst recouping the income from high-income earners.

WalletHub found an even larger gap for real estate taxes, with the burden in Texas more than double that of California.

As a result, California has the nation's highest poverty rate when adjusting for the cost of housing, despite having a poverty rate almost equal to the national average — and lower than Texas — without this adjustment (U.S. Census Bureau, 2020 ).

What states have the lowest tax burden in 2023? ›

The ten states with the lowest tax burdens are Alaska, Wyoming, Tennessee, South Dakota, Michigan, Texas, North Dakota, Georgia, South Carolina, and Oklahoma. Alaska holds the first position with a state-local tax burden of 4.60%, making it the state with the lowest tax burden in the nation.

As of 2023, eight states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax.

The benefit of moving to a state with no income tax is pretty straightforward: you don't have to pay state income taxes on money you earn. Currently, seven states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming—don't levy income taxes on individuals.

Arizona, Idaho, Indiana, Iowa, Kentucky, Mississippi, Missouri, Nebraska, New Hampshire, New York, and North Carolina will cut the individual income tax rate on New Year's Day, according to the Tax Foundation.

Imposition Of Tax

Other states with a flat income tax include Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Michigan, Mississippi, New Hampshire, North Carolina, Utah, and Washington.

New York has the highest state income tax burden out of any other state. In 2020, the state collected income taxes that amounted to 4.7% of per capita personal income, or nearly $3,500 per person. Not far behind are Maryland and Washington, DC.

1. Alaska. Alaska is the most tax-friendly state for retirees because it has no state income tax or tax on Social Security. And its sales tax rate is the fourth lowest on our list - fifth lowest in the U.S. But keep this in mind: The cost of living in Alaska is higher than in most states.

If you have a low living cost and can supplement your income with a part-time job or a generous pension, then retiring on $3,000 a month is certainly possible.

Why are property taxes so low in Florida? ›

Florida by the numbers

Florida does not collect any property taxes, which helps to keep the real estate tax burden low in many areas. That said, local governments assess real estate taxes on the county level and counties receive a lot of their funding through these taxes.

Florida residents do not need to file a state tax return because the Sunshine State does not have a personal income tax.

What Are the Average Property Tax Rates in Florida? According to the Tax Foundation, Florida ranks No. 26 when it comes to property taxes paid as a percentage of housing value, with an effective property tax rate of 0.91%.