Working from home during the pandemic prompted internal migration with some workers moving to no-tax or low-tax states.
But that doesn’t mean they didn’t face a tax bill elsewhere.
If states don’t tax income, they still need to generate revenue and that is usually reflected in property taxes or sales tax.
“States with no income taxes, on average, have property taxes 3-6% higher than states with income taxes and sales taxes 15-20% higher. % above those of states with income taxes,” the Center on Budget and Policy Priorities (CBPP) told Yahoo Finance.
If you’re considering moving to another state to reduce your tax liability, it’s important to understand that while low or no income taxes may be attractive, property and sales taxes should also be part of the equation.
10 states with the highest and lowest income tax rates
Individual income taxes account for 40% of income for states that tax income, according to the Tax Foundation.
State income tax can range from as low as 2.5% in Arizona to as high as 13.3% in California. California, Massachusetts, New Jersey, New York, and Washington, DC, also have a surcharge called the “million dollar tax,” for taxpayers in the highest income brackets, with $1 million or more in income. In 2021, New York enacted an additional top rate of 10.9% for those with incomes greater than $25 million.
Another consideration is the tax structure your state uses. Do you apply a flat fee to all income or a tiered fee that increases with income?
Like the federal government, some states reduce the tax burden for residents by offering exemptions and deductions or using special tax brackets so married taxpayers can avoid a “marriage penalty” that often occurs if both spouses work . Other states tie standard deductions or exemptions to the federal tax code.
Higher and lower property taxes
Property taxes account for 31.1% of state tax collections and 71.7% of local tax collections, according to the Tax Foundation.
Although Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming have no income taxes, research from the Center on Budget and Policy Priorities shows that property and sales taxes are typically 6% higher for make up for the absence of income by income. taxes.
Alaska is the 10th most expensive state for property taxes and Texas is the 12th most expensive, according to data from the Tax Foundation.
Property taxes and cities
Even if your state may have low property taxes, your location within that state may have higher property taxes.
The pandemic housing boom and the ability to work remotely spurred national migration to areas that increased home prices and values. Homeowners in those locations will most likely see an increase in local property taxes.
For example, although Texas has no income tax, Austin has the fifth largest property tax in the US, with homeowners paying a median of $5,751. Dallas ranked 13th and Houston 16th among cities with the highest property taxes, according to a study by LendingTree.
Highest and lowest sales tax
Sales tax is another way that states generate revenue.
Forty-five states have a sales tax, plus the District of Columbia, with 38 states allowing local sales tax, according to a report by the Tax Foundation.
Alaska, Delaware, Montana, New Hampshire, and Oregon have no state sales tax. Although Alaska does not have a state sales tax, it does allow localities to collect a local sales tax.
Even though a state may have a low income tax rate, the sales tax may actually be high. For example, Louisiana has one of the lowest income and property taxes, but has the highest combined state and local sales tax of 9.55%.
Similarly, Tennessee has no state income tax, is among the 10 lowest states for property taxes, but has the second highest combined sales tax rate at 9.548%.
Arkansas, Alabama, and Oklahoma have some of the lowest property tax rates, but are among the top 10 states with the highest combined sales tax rates.
Ronda is a senior personal finance reporter for Yahoo Finance and an attorney with experience in law, insurance, education, and government. Follow her on Twitter @escriberonda
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