A new year brings another tax season. For some of us, the pain of paying our taxes is worse than for others, simply because of where we live.
In some states — eight, to be exact, now that Tennessee has joined the lineup — residents do not pay a dime of income taxes. Other states tax their citizens at various rates, from lightly to more moderately.
But in a handful of states, the tax ax falls hard. In these states, residents have to dig deep to pay as much as 13.3% of their income in state taxes each year.
Following are the nine states, plus the District of Columbia, with the highest income tax rates, as ranked by the top marginal individual income tax rate. These rates are for the 2020 tax year — the year for which returns are due this spring — according to the Tax Foundation.
The Badger State is sure to pester its wealthiest residents to pay up at tax time. The highest individual income tax rate tops out at 7.65% in Wisconsin.
However, living in the state might not be as tax-unfriendly as it appears at first blush. A recent report found that Wisconsin’s tax burden — including state and local taxes — is improving. It has fallen to 10.2% of income, the lowest level in Wisconsin in at least 50 years.
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 top earners pay their share of a 8.53% tax rate.
Relief may be on the way, however. There is talk that tax cuts will be on the agenda in the current legislative session.
Additionally, a tax change that relates to pass-through business income will continue to phase in during 2021, as we detail in “5 States Lowering Taxes This Year and 2 Raising Them.”
Vermont’s lovely bucolic landscape can’t hide the bite of its tax code. Residents here pay a top rate of 8.75%.
While living in the Green Mountain State can be costly at tax time, dying there has become cheaper for some folks, as the state has been increasing its estate tax exemption.
In 2019, the exemption was $2.75 million. As of this year, it has risen to $5 million, the Tax Foundation reports. That means fewer residents will now pay one final tax as they shed this mortal coil and head to that tax-free zone in the sky.
Wondering if your state also levies an estate tax? Check out “17 States With Inheritance or Estate Taxes — or Both.”
7. New York
Taxes soar higher than a skyscraper in the Empire State, with rates topping out at 8.82%. To make matters worse, Gov. Andrew Cuomo recently proposed raising the top rate to 10.82% to help cover the state’s projected $15 billion deficit.
Critics say New York’s onerous tax policy is a major reason why the state’s population has fallen in recent years. But to be fair, taxes are not always headed north in the state. Just this year, New York stopped collecting its capital stock tax.
6. District of Columbia
The nation’s capital is also home to some of its highest tax rates, with top earners paying out at a 8.95% rate.
Dying in the District of Columbia also has become more expensive for a larger group of wealthy people. This year, the district’s estate tax exemption drops to $4 million, down from nearly $5.8 million previously.
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.
However, you don’t have to be rich to feel the cold sting of taxes in the North Star State. By one estimate, residents pay 10.02% of their income per capita toward property, income and sales taxes. That is the eighth-highest state tax burden in the nation.
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%.
Recently, Oregon legislators have signaled a growing determination to take aim at income inequality in the state. So, the tax climate could grow increasingly inhospitable for the state’s wealthiest residents.
3. New Jersey
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 the nation’s third-highest.
If you do manage to get rich in New Jersey, watch out! Last fall, the state passed a law making the top rate — which used to kick in at $5 million — apply to those earning $1 million or more.
The Aloha State isn’t so friendly when it comes to tax policy. Residents pay a top income tax rate of 11%.
On the bright side for homeowners: Hawaii boasts the lowest effective real-estate property tax burden in the nation, as we reported in “10 States With the Cheapest Property Taxes.”
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, topping out at a whopping 13.3%.
Only the very wealthiest pay that top rate, as California levies an additional 1% tax on taxable income over $1 million. But rates are still relatively high for millions of residents: California also has the highest state-level sales tax in the nation — 7.25%.
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