A movement to reduce taxes is sweeping across the country. At least 11 states are considering cutting income tax rates this year, and 10 may reduce their sales tax rates.
But income tax rates remain high in a number of states. At a time of soaring inflation, having to fork over a large chunk of your pay to state tax collectors — in addition to paying your fair share to Uncle Sam — is particularly painful.
Following are the nine states, plus the District of Columbia, that have the highest income tax rates, as ranked by their top marginal individual income tax rate. These rates were effective as of Jan. 1, 2022, so they may not necessarily apply to tax returns filed this spring. Data comes from the nonprofit Tax Foundation.
10. Wisconsin
The Badger State is sure to pester its wealthiest residents to pay up at tax time. Its highest individual income tax rate tops out at 7.65%. (The lowest rate is 3.54%.)
However, better days may be on the horizon for taxpayers in Wisconsin. Republicans in the state Legislature are pushing to lower income taxes, with the goal of eventually eliminating them altogether.
9. Iowa
If you live in the Hawkeye State, watch out for the eagle eye of the state government! Officials are sure to watch closely to make sure Iowa’s biggest earners pay the 8.53% top tax rate. (The state’s lowest tax rate, however, is a mere 0.33%.)
However, things will start improving in Iowa soon. Due to a newly enacted law, the state’s individual income tax rate will fall to a flat 3.9% between now and 2026, and retirement income will no longer be taxed starting in 2023. To learn more, check out “This State Just Eliminated Taxes on Retirement Income.”
8. Vermont
Vermont’s bucolic landscape can’t hide the bite of its tax code. Residents here pay a top rate of 8.75%. (The lowest rate is 3.35%.)
Perhaps aware of how high taxes pressure family budgets, Democrats in the Green Mountain State have spearheaded an effort to create a refundable child tax credit of $1,200 for children age 6 and younger.
Half of this credit would be paid out to state residents on a monthly basis, with the other half being paid out when annual taxes are filed.
7. Minnesota
Unrelenting cold is a big part of wintertime life in Minnesota, and the state creates an extra chill for its highest-earning residents in the form of a 9.85% top tax rate. (Even the lowest tax rate is relatively steep at 5.35%.)
Forcing state residents to cough up all that cash has helped put Minnesota in an enviable position: Its state budget surplus is now projected to reach a historic $7.7 billion.
6. Oregon
The Beaver State is home to gorgeous mountain vistas and the rugged beauty of unspoiled ocean coastline. But you pay a price for living in the seat of such splendor, with income tax rates topping out at 9.9%. (The lowest rate is 4.75%.)
Oregon taxpayers who feel they are being fleeced can take a little comfort in the knowledge that it could have been worse. A proposal to add a 3% tax to the purchase of luxury goods — including snowmobiles, handbags, jewelry and firearms over a certain price — recently died in the state Legislature.
4. New Jersey (tie)
Anyone trying to grow their personal wealth in the Garden State will have to contend with the choking weeds of the state’s tax policy. The 10.75% top rate is one of the nation’s highest. (Its lowest tax rate, though, is just 1.4%.)
New Jersey gets its fair share of negative publicity for having high tax rates, but recently proposed legislation might lower the tax burden somewhat. It would make sure more money from the state’s Energy Tax Receipts Property Tax Relief Fund makes its way back to municipalities in the state.
The hope is that doing so would prevent municipalities from continuing to raise their residents’ property taxes.
4. District of Columbia (tie)
The nation’s capital is also home to some of its highest tax rates, with top earners paying out at 10.75%. (The lowest earners pay a rate of 4%.)
In fact, the District of Columbia became one of the very few locales to actually raise income tax rates recently when it sharpened the tax ax in 2021.
3. New York
Taxes soar higher than a skyscraper in the Empire State, with rates topping out at 10.9%. (The lowest rate is 4%.)
Along with the nation’s capital, New York was the only state to raise taxes in 2021. Perhaps that tax increase was a factor motivating some of the more than 319,000 residents who departed the state for good in that year.
2. Hawaii
The Aloha State isn’t so friendly when it comes to tax policy. Residents pay a top income tax rate of 11%. (The lowest rate, though, is a mere 1.4%.)
On the bright side for homeowners: Hawaii boasts the lowest effective real-estate property tax burden in the nation, as we reported in “9 States With the Lowest Property Tax Rates.”
1. California
The Golden State — home to the famous Gold Rush of the 19th century — can’t wait to get its hands on your own personal riches. California has the highest top income tax rate in the nation, coming in at a whopping 13.3%. (The lowest rate is just 1%.)
And it almost got much worse. A proposal to create a universal health care system in the state — Assembly Bill 1400: Guaranteed Health Care for All — recently died in the Legislature. Had it passed, the top tax rate in California would have soared to 18.05%. (The lowest rate would have risen to 2.25%.)
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