Nobody likes to pay taxes. But residents of several states can take comfort in the knowledge that their burden may be a little lower when they pay their taxes for 2020.
Four states have reduced individual tax rates for 2020, the nonprofit Tax Foundation reports. Another four states are increasing their estate tax exemptions.
According to the foundation, the following states reduced some or all of their income tax rates effective Jan. 1.
Arkansas’ top tax rate on middle-income earners — meaning taxpayers with a total income between $22,000 and $79,300 — is now 5.9% (down from 6% for 2019).
The top tax rate on high-income earners — meaning taxpayers with a total income of more than $79,300 — is 6.6% (down from 6.9%).
For all of Arkansas’ 2020 tax rates, see Table 2 on Page 4 of the Tax Foundation’s report.
Massachusetts has a single income tax rate, meaning all taxpayers pay the same rate, regardless of how much money they earn.
That single rate is now 5% (down from 5.05% for 2019).
Tennessee is among a handful of states that do not tax wage income. It only taxes interest and dividend income — although that tax is being phased out, as we detail in “How All 50 States Tax Your Retirement Income.”
As part of that phase-out, Tennessee’s tax rate for interest and dividends is now 1% (down from 2% for 2019).
West Virginia is phasing out its income tax on Social Security benefits for taxpayers with income of:
- $100,000 or less, if their tax-filing status is married filing jointly
- $50,000 or less, if they have any other tax-filing status
As part of this phase-out, 35% of a qualifying taxpayer’s benefits are now exempt from income taxes.
Other state tax changes
The Tax Foundation notes that this year will be an active one for changes to tax codes in many states.
For example, the following states are increasing their estate tax exemptions, meaning fewer estates will be subject to taxation:
- New York
When applicable, estates are taxed based on the total value of everything a person owns at the time of his or her death, as we detail in “17 States With Inheritance or Estate Taxes — or Both.” However, estate taxes generally only apply to large fortunes, such as those worth millions of dollars.
But the news is not all good for large estates: Hawaii has added a new tax bracket that will require estates valued above $10 million to be taxed at a 20% tax rate.
Federal tax changes
Looking for more good tax news in 2020? We’ve found it for you.
Limits for two federal income tax credits will rise this year, the IRS says. For more, check out “Limits for These 2 Tax Credits Rise for 2020.”
In addition, four federal tax breaks that were slated to expire instead have been extended through at least this year. You can learn about them in “4 Expiring Tax Breaks Extended Through 2020.”
What do you think of your state’s tax rates? Let us know in comments below or on our Facebook page.