The Best and Worst Tax States for Low-Income Residents

Empty coin purse
StanislauV / Shutterstock.com

Where you live can make a big difference in how far your money goes. The cost of living expenses such as housing and food can eat into your budget a lot more in some places than others, and state taxes can also vary widely.

If you don’t make much money, you could easily find yourself struggling more in some states than in others.

WalletHub recently put together a study detailing the way that taxes in each state and the District of Columbia affect the income of low-, middle- and high-income residents. The study ranked the states and D.C. based on the total tax burden as a percentage of income for each type of earner.

Following are the five worst and five best states when it comes to the tax impact on residents with a low income, which WalletHub defined as $25,000.

No. 5 worst state: Indiana

Indiana
f11photo / Shutterstock.com

Sales and excise tax as a percentage of income: 6.16%

Property tax as a percentage of income: 2.79%

Income tax as a percentage of income: 2.88%

Total tax burden as a percentage of income: 11.82%

Indiana is the fifth-worst state for taxation of residents with a low income. Sales and excise taxes hit these residents particularly hard. Indeed, the Hoosier State’s statewide sales tax rate of 7% is one of the highest in the nation, according to the Sales Tax Institute.

No. 4 worst state: Pennsylvania

Philadelphia, Pennsylvania
Sean Pavone / Shutterstock.com

Sales and excise tax as a percentage of income: 5.55%

Property tax as a percentage of income: 3.15%

Income tax as a percentage of income: 3.36%

Total tax burden as a percentage of income: 12.06%

Not only is Pennsylvania one of the five worst states in which to be a low-income taxpayer, it is also one of the five worst states for taxpayers with middle incomes, which WalletHub defined as annual earnings of $50,000.

For low-income residents, sales and excise taxes constitute the greatest share of their total burden. Pennsylvania levies a statewide sales tax of 6%, and some local governments also levy a sales tax of as high as 2%, according to the Sales Tax Institute. That means the combined sales tax rate is as high as 8% in some parts of the state.

No. 3 worst state: Hawaii

Shane Myers Photography / Shutterstock.com

Sales and excise tax as a percentage of income: 8.43%

Property tax as a percentage of income: 2.42%

Income tax as a percentage of income: 2.09%

Total tax burden as a percentage of income: 12.94%

The Aloha State has the lowest effective real-estate property tax rate in the country, according to a separate recent analysis by WalletHub, as we recently reported in “This Surprising State Has the Lowest Property Tax Burden.”

Despite this, Hawaii ranks rather low — coming in at third-worst for both low- and middle-income residents — when it comes to the state’s total tax burden as a percentage of those residents’ income.

No. 2 worst state: Illinois

Chicago, Illinois
f11photo / Shutterstock.com

Sales and excise tax as a percentage of income: 5.79%

Property tax as a percentage of income: 5.10%

Income tax as a percentage of income: 2.28%

Total tax burden as a percentage of income: 13.18%

Not only is Illinois one of the worst places to earn a low income when it comes to taxes, but it also ranks second-worst for residents with middle incomes and third-worst for those with high incomes, which WalletHub defined as $150,000. It seems that no matter how much you earn in Illinois, it’s a bit of a struggle.

No. 1 worst state: Washington

Seattle skyline
Checubus / Shutterstock.com

Sales and excise tax as a percentage of income: 11.14%

Property tax as a percentage of income: 3.45%

Income tax as a percentage of income: 0%

Total tax burden as a percentage of income: 14.59%

If you don’t like having an income tax, Washington can be a great choice. It’s one of the seven U.S. states that do not levy any income taxes, as we recently reported in “Hate Income Taxes? Be Glad You Don’t Live in These 6 Places.”

However, property taxes and especially sales taxes can be problematic for low-income residents here. In fact, state taxes in the Evergreen State are quite regressive overall: While the total tax burden eats up 14.59% of the earnings of low-income residents, it claims 11.26% of the earnings of middle-income residents and only 7.32% of high-income residents’ earnings.

No. 5 best state: South Carolina

Columbia, South Carolina
Sean Pavone / Shutterstock.com

Sales and excise tax as a percentage of income: 4.78%

Property tax as a percentage of income: 2.41%

Income tax as a percentage of income: 0.81%

Total tax burden as a percentage of income: 7.99%

Like Hawaii, South Carolina has one of the lowest effective real-estate property tax rates in the United States, according to a separate recent analysis by WalletHub. Overall, South Carolina is also one of the best states in which to be a low-income resident when it comes to the share of earnings claimed by taxes.

No. 4 best state: Utah

Arches National Park, Utah.
anthony heflin / Shutterstock.com

Sales and excise tax as a percentage of income: 4.67%

Property tax as a percentage of income: 1.65%

Income tax as a percentage of income: 1.31%

Total tax burden as a percentage of income: 7.63%

Utah isn’t just one of the best places to be a low-income taxpayer. Utah is a state where there isn’t a lot of difference in the tax impact on residents overall, no matter how much you earn. Taxes take up 7.63% of the earnings of low-income residents, compared with 7.75% for middle-income residents and 7.93% for high-income residents.

One bummer for retirees, though: Utah is one of a handful of states that tax Social Security retirement benefits, as we recently reported in “13 States That Tax Social Security Benefits.”

No. 3 best state: Montana

Men on horses in mountains
outdoorsman / Shutterstock.com

Sales and excise tax as a percentage of income: 1.7%

Property tax as a percentage of income: 3.73%

Income tax as a percentage of income: 1.33%

Total tax burden as a percentage of income: 6.77%

With sales and income taxes taking a smaller share of their earnings, low-income residents have it a little easier in the Treasure State than most other parts of the U.S. Montana is also one of the best states to make a middle income, ranking No. 3 for those residents as well.

Like Utah, however, Montana is one of the 13 states that tax Social Security income.

No. 2 best state: Alaska

Andrea Izzotti / Shutterstock.com

Sales and excise tax as a percentage of income: 2.68%

Property tax as a percentage of income: 3.19%

Income tax as a percentage of income: 0%

Total tax burden as a percentage of income: 5.87%

Alaska is one of the best places to live for taxes, no matter your income level. In fact, while is it the second-best state for low-income residents when it comes to taxes, it also is the best state for the tax impact on middle- and high-income residents. Being one of the seven states without a statewide income tax definitely helps.

No. 1 best state: Delaware

New Jersey from Delaware
Felix Mizioznikov / Shutterstock.com

Sales and excise tax as a percentage of income: 2.06%

Property tax as a percentage of income: 1.63%

Income tax as a percentage of income: 1.54%

Total tax burden as a percentage of income: 5.24%

Not only is Delaware the best state for the tax impact on low income residents, it also ranks No. 2 for how taxes affect those with a middle-income level. Perhaps not surprisingly, Delaware also has one of the lowest effective real-estate property tax burdens in the country, a separate recent analysis by WalletHub found.

What’s your take on this news? Share your thoughts by commenting below or on the Money Talks News Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
10 Things You Should Never Buy on Amazon
10 Things You Should Never Buy on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

7 Effortless Ways to Make Extra Money
7 Effortless Ways to Make Extra Money

In the digital age, new ways of earning cash crop up all the time — and some require next to no effort on your part.

7 Ways Coupons Waste Your Money and Time
7 Ways Coupons Waste Your Money and Time

Here’s why I hung up my scissors and quit clipping coupons.

8 Reasons Your Parents Had an Easier Retirement Than You Will
8 Reasons Your Parents Had an Easier Retirement Than You Will

Here’s why the last decades of life are harder now than they used to be.

7 Things That Prove Cheaper Isn’t Always Better
7 Things That Prove Cheaper Isn’t Always Better

These purchases can end up costing you more if you try to go the cheap route.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

The 16 Cars Most Likely to Last 200,000 Miles
The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

11 Products Now in Short Supply Due to the Pandemic
11 Products Now in Short Supply Due to the Pandemic

Many goods we take for granted have become tough to find in 2021.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.