The Best (and Absolute Worst) States for Taxes
Here's a look at the top ten—and bottom ten—states for taxes, according to Kiplinger and other experts.
Alaska is not only drop-dead beautiful, it’s the best location in the nation for state taxes. Folks there don’t have to pay income, state sales, or estate taxes. “The Last Frontier” also boasts the lowest gasoline taxes in the country. As if that weren’t enough, the state gives you money every year just for living there—it’s called the Permanent Fund Dividend.
Wyoming homeowners pay the second lowest property taxes in the United States; a mere 0.61 percent according to Daniela Andreevska, marketing director at Mashvisor, a real estate data analytics company. Wyoming is one of few states that have neither a personal nor a corporate income tax. Lastly, Wyoming was rated number one for taxes for retirees, according to Bankrate.com.
Best: South Dakota
As one of the seven states without a personal income tax, South Dakota also ranks as one of the most taxpayer-friendly states in America, according to Smart Asset. It also has the 12th lowest sales tax, with rates ranging from 4 to 6 percent when including local rates; the combined average is 5.83 percent. The only tax where South Dakota rates are above the national average? Property tax. The state’s average effective property tax rate is 1.36 percent, which is higher than the national average of 1.1 percent.
It’s not just the warm weather or sunny beaches that draws folks to Florida; the state is also very tax-friendly. There is no personal income tax, tax on investments, or estate tax. While the state doesn’t charge a property tax, a number of counties do; however there are a range of property tax exemptions for seniors, veterans, and more. Bankrate.com, rated Florida the fourth best state on taxes for retirees. Here’s everything you need to know about the tax cuts implemented last year that are affecting you now.
Nevada has no personal or corporate income tax, making it a draw for businesses looking to relocate. “We recently moved our company from Sacramento, California to Reno, Nevada,” says Matthew Ross, co-owner and COO of RIZKNOWS and The Slumber Yard, which operate multiple internet properties, websites, YouTube channels, and a mobile application. What was the appeal? “We found that Reno provides a nice blend of big city resources, business-friendly policies, and scenic landscapes, plus it’s close to the Sacramento area where a lot of our employees have roots,” Ross says. “Most importantly, Reno offered a lower personal income tax.”
Best: North Dakota
North Dakota has one of the lowest state marginal individual income tax rates; even those at the top pay only 2.9 percent. There is no inheritance and no estate tax in the Peace Garden State. Kiplinger rated North Dakota the fourth best state for retirees, in part because of the low taxes and overall reasonable cost of living.
Investopedia calls Delaware a tax shelter. Here’s why: There is no personal property tax, inheritance tax, or stock transfer taxes. On many purchases, there is no sales tax, as long as the company producing the goods is a cooperation in Delaware.
The Grand Canyon state isn’t just proud of that historic landmark, it has below-average income tax rates and property tax rates, along with very low gas taxes. It’s also attractive to retirees, as Arizona is one 37 states that don’t tax social security benefits.
Mississippi’s tax rates are in the process of going even lower; the lowest tax bracket is being phased out by 2022, reports Kiplinger. In the meantime, tax on gas is only 19 cents per gallon of gas, making it the third lowest in the nation, according to the Tax Foundation. Drivers benefit in another way, too; vehicle sales are taxed at 5 percent, which is two percentage points below the general sales tax rate. Finally, The property tax in the Magnolia State is the 19th lowest in the country, with tax on a median home valued at $105,700 coming to a mere $841.
The Pelican State has the third-lowest property taxes in the United States; according to Kiplinger, property tax on the state’s median home value of $148,300 is a low $750. It also won’t cost you a fortune to fill up at the gas station. The gas tax, at 20 cents per gallon, is 41 percent less than the national average of 34 cents per gallon.
Minnesota has a progressive income tax, meaning it taxes high earners more than low earners, but even its lowest income tax rate of 5.35 percent is higher than many other states, while its top tax rate of 9.85 percent is one of the highest in the nation. Property and sales taxes are also above average. Retirees especially won’t like the fact that Minnesota is one of the 13 states that tax Social Security benefits.
Maryland hits residents wallets at the state and local level, as each of its 23 counties and Baltimore may levy a personal income tax; the average rate is 2.9 percent—and that’s on top of the state’s tax, reports Kiplinger’s. It’s also one of only two states (New Jersey is the other) that has both an estate and an inheritance tax, although there is a long list of exemptions for the latter.
Worst: New York
Income tax ranges from 4 to 8.82 percent, which ranks New York as the 7th highest in the nation, according to Business Insider. Depending on where you live, property taxes across the state range from 0.8 percent to 2.5 percent; the average rate is 1.65 percent, according to Smart Assets. As for cheap gas, fuggedaboutit; gas taxes and fees are the fifth highest in the country at 45 cents a gallon, per Tax Foundation. And as much as New York is a great place to shop, the average sales tax is the 10th highest in the country, although clothing and shoes under $100 and food are exempt.
The Prairie State has a flat income tax rate of 4.95 percent—and that’s not even the worst part. “One of the most painful areas for Illinois retirees who are on a fixed income is property taxes. It’s not unusual for Illinois residents to pay 1.5 to 2 percent of their home value, per year, in real estate taxes,” shares Scott Tucker, president and founder of Scott Tucker Solutions in Chicago.
According to Kiplinger, Maine has been working to lower its income tax bite: In 2016, the top rate fell from 7.95 to 7.15 percent. While that’s good news, the state’s lowest rate is 5.8 percent, which is higher than some other states’ top rate. The property tax on Maine’s median home value of $176,000 is $2,329, the 17th-highest in the country.
Vermont’s 2.02 percent property tax makes it among the highest in the nation—eighth highest, according to Kiplinger. State income tax rates start at 3.35 percent and top out at 8.75 percent. Worse yet, the state limits deductions to $15,000 for singles or $31,500 for married couples.
Who wouldn’t want to live in a locale like Hawaii? Well, there’s a downside to paradise and it’s taxes. Hawaii’s top income tax rate of 8.25 percent is one of the highest in the United States. Better news? Its property tax is one of the lowest in the nation across the board and there’s no official state sales tax, though there are general excise taxes that often get passed on to consumers.
The Golden State doesn’t shine when it comes to taxes. For starters, its base sales tax is 7.25 percent, the highest in the country, reports Smart Asset. When it comes to income taxes, there are nine brackets; that’s good for you if you’re in the lowest and pay 1 percent, but not so good if you’re in the highest and pay 12.3 percent.
Worst: New Jersey
New Jersey’s property tax rate of 2.31 percent is the highest in the nation, according to Kiplinger. Better news? It has a relatively low income tax; rates top out at 8.97 percent for those making more than $500,000. But you may want to move before you turn 65; Bankrate.com rated New Jersey the worst for retirees in terms of taxes. Find out the secrets your tax planner isn’t telling you.
The 2 percent property tax earns the Nutmeg State the 4th in line among the most expensive locales in the nation, according to Kiplinger. Even those in the lowest tax bracket ($10,000 individuals, $20,000 joint) pay a 3 percent personal income tax, while those at the top ($500,000 individual, $1 million joint) pay 6.99 percent. Check out these things IRS agents won’t tell you about taxes.