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Tax Burden By State (2024 Tax Burden Guide)

Last updated 07/18/2024 by

Benjamin Locke

Edited by

Summary:
State tax burdens vary widely across the U.S. because of different tax policies. Alaska has low taxes due to its oil revenues, while New York has high taxes to support extensive public services. These differences significantly affect how much residents pay in taxes depending on where they live.
Tax burdens across the United States vary significantly due to differences in state policies and economics. Tax burdens represent the percentage of income that residents pay in state and local taxes, including income, property, and sales taxes. These burdens vary due to factors like local economic conditions, government spending, and available natural resources. States with high tax burdens typically fund more extensive public services, while states with low tax burdens often have alternative revenue sources or lower public spending.​

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How do tax burdens vary by state?

The tax burden in each state is influenced by various forms of taxation including income, property, and sales taxes. States like New York, Connecticut, and Hawaii consistently rank high due to comprehensive public services that require higher tax revenues. Conversely, states such as Alaska and Wyoming have some of the lowest tax burdens, benefiting from unique revenue sources such as natural resources, which reduce the reliance on personal income taxes.
When we talk about total tax burden on average across the states, we are referring to three huge taxes — the state income tax, property tax, and sales tax. Note that there are other taxes besides these — estate taxes, excise taxes, and a plethora of various local taxes can also fall into the mix. Each state has a similar mix of these taxes but particular to their own state; this is why the tax burden can be a very different animal depending on where you live. – Joshua Katz, founder of Universal Tax Professionals

States with the lowest and highest tax burdens

States with the lowest total tax burden

StateTotal Tax Burden (%)
Alaska5.16%
Wyoming7.50%
Tennessee7.60%
South Dakota8.40%
Florida8.60%
Alaska and Wyoming, for example, utilize their natural resources to fund state needs, thereby keeping personal tax burdens low. South Dakota and Florida benefit from no state income tax, which significantly lowers the overall tax burden for their residents.

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States with the highest total tax burden:

StateTotal Tax Burden (%)
New York15.9%
Connecticut15.4%
Hawaii14.1%
New Jersey13.2%
Illinois12.9%
States like New York and Connecticut face high tax burdens due to the combination of significant healthcare, education, and infrastructure expenditures, which require extensive fiscal resources. The high tax burdens in these states are reflective of their broad public service base and higher cost of living.
Understanding the tax landscape is crucial for individuals and businesses as it influences economic decisions such as property purchases, investments, and residency. Awareness of tax burdens can also guide voters and policymakers in their approach to fiscal policy and public spending.

How is tax burden calculated?

The calculation of a state’s tax burden is pivotal for understanding how much residents are financially impacted by taxes relative to their income. Here’s a step-by-step look at how this calculation is generally performed, accompanied by anecdotes to illustrate the process.

The formula for calculating tax burden

The tax burden of a state is most commonly expressed as a percentage of total personal income. This percentage is calculated using the following formula:
Tax Burden (%) = (Total Taxes Collected / Total Personal Income) x 100
Here’s what each component of the formula represents:
  • Total Taxes Collected: This includes all forms of taxes collected by the state, such as income taxes, property taxes, sales taxes, and any other taxes levied by the state.
  • Total Personal Income: This is the sum of all personal income earned by the residents of the state, including wages, dividends, interest, and any other form of income.

How tax burden works in real life

Example: High income, low tax burden

Consider a state like Alaska, which has a relatively high average personal income due to lucrative jobs in the oil and natural gas industries. Despite high incomes, Alaska has no state income tax and relies heavily on revenues from natural resources, which keeps the overall tax burden low. For example, if total taxes collected in a year were $5 billion and total personal income was $100 billion, the tax burden would be calculated as follows:
Tax Burden = ($5 billion / $100 billion) x 100 = 5%

Example: Low income, high tax burden

Contrast this with a state like Mississippi, which might have lower average personal incomes. If the state has high sales and property taxes to fund public services, the tax burden could be disproportionately high. Suppose Mississippi collects $3 billion in taxes against a total personal income of $40 billion:
Tax Burden = ($3 billion / $40 billion) x 100 = 7.5%
These examples show how states with higher incomes can afford to have lower tax rates (and hence lower tax burdens) if they have significant alternative revenues (like Alaska), whereas states with lower incomes might need higher tax rates to fund public services, resulting in a higher tax burden.
Consider investing in energy-efficient home improvements to take advantage of state and federal tax credits. Many states offer incentives for installing solar panels, energy-efficient windows, and other eco-friendly upgrades. These credits can significantly reduce your tax burden while also lowering your utility bills. Additionally, staying informed about any temporary tax holidays or rebates for energy-efficient appliances can provide further savings.
Anna Prits, founder of BuzzVoice.com

Different types of state taxes

Total tax burden

This encompasses all the taxes residents pay relative to their income, providing a broad measure of the state’s tax demand on its citizens. For instance, California and New Jersey exhibit high total tax burdens reflective of their complex tax structures and high cost of public services​ (Tax Foundation)​.

Per capita tax collection

Reflects the average tax amount collected per resident, offering insights into the tax load on an individual level. States with high tourism or natural resource exploitation can show skewed figures because of tax contributions from non-residents.

Effective tax rate

This measures the average income tax rate paid by residents, adjusted for different income brackets. It’s a crucial indicator of the proportion of personal income that residents pay in taxes. States with progressive tax systems, like California, may show a higher effective rate at higher income levels compared to those with a flat tax rate.

Is tax burden the best way to calculate your potential taxes when moving?

While the tax burden provides a valuable broad perspective on the tax climate in a state, it may not offer precise insights into your individual tax liabilities if you’re considering relocating. Tax burden, calculated as the total taxes collected from all sources as a percentage of total personal income in the state, serves as a useful comparative metric but has limitations when applied to personal financial planning.
Weigh the Risks and Benefits
IS TAX BURDEN THE BEST METRIC?
Here is what to consider when using tax burden as a metric.
Why it’s good
  • General Overview: Offers a macro-level view of the general tax environment, helping to compare states broadly.
  • Budget Planning: Assists in preliminary financial planning by giving a rough idea of the tax landscape.
  • Public Policy Insight: Reflects the effectiveness of state tax policies and public service funding, useful for civic engagement and understanding governmental fiscal health.
  • Economic Insight: Provides insights into the state’s economic management and can indicate the health of its economy based on tax collection efficiency.
Why it might not be as good as other metrics
  • Personal Variability: Does not account for individual financial situations such as income level, deductions, or personal expenditures.
  • Lacks Specificity: Omits detailed breakdowns of different tax types (income, property, sales), which could affect personal tax obligations differently.
  • Local Taxes Omitted: Often overlooks city or county taxes, which can vary widely even within the same state and significantly impact overall taxation.
  • Consumption Patterns: Does not account for personal consumption habits which can influence sales and excise tax burdens significantly.

Pro Tip

Residents of high-tax states tax can reduce their tax burden by properly plan their taxes and also by utilizing the various tax credits and deductions available, such as tax-advantaged retirement accounts, 529 plan contributions for children, relocating to a state with lower taxes, reducing taxable income through charitable contributions, and using estate planning strategies like trusts and gifting to minimize inheritance and estate taxes.” – George Birrell, Co-Founder of Taxhub

FAQ

How is state tax burden calculated for individual taxpayers?

State tax burden for individuals is calculated by aggregating all the taxes an individual is liable to pay (including income, property, and sales taxes) and expressing this total as a percentage of their income. This approach gives an overview of how much of an individual’s income is used to pay taxes. It’s important to consider that this calculation offers an average view and does not account for specific deductions and credits that could significantly lower an individual’s effective tax rate.

Do all states calculate tax burden the same way?

No, the calculation of tax burden varies by state due to differences in the types and rates of taxes imposed. For example, some states rely heavily on income taxes, while others might garner a significant portion of their revenue from sales or property taxes. Additionally, the methodology to assess overall tax impact can differ, with some states offering numerous deductions and credits that can alter effective tax rates substantially.

What factors can influence changes in state tax burden?

Several factors can influence changes in a state’s tax burden, including legislative changes to tax rates, adjustments in tax brackets, introduction or elimination of tax credits, and shifts in the economic climate that affect income levels and consumption patterns. Economic downturns, for instance, might lower overall income levels, which could adjust the income tax revenues states can expect to collect, thereby affecting the tax burden.

How do tax exemptions and credits affect an individual’s tax burden?

Tax exemptions and credits are designed to reduce the tax burden on individuals by lowering taxable income or directly reducing the tax owed. Exemptions work by reducing the amount of income that is subject to tax, potentially placing a taxpayer into a lower tax bracket, thereby decreasing their overall tax liability. Credits provide a dollar-for-dollar reduction in tax owed, and they can significantly decrease a person’s tax burden, especially if the credits are refundable, meaning they can receive a refund if their credits exceed their total tax liability.

Where can I find detailed information on how my state calculates tax burden?

For the most accurate and detailed information on how a specific state calculates tax burden, visiting the state’s Department of Revenue or Taxation website is advisable. These websites typically offer resources, detailed reports, and sometimes tax calculators that allow residents to estimate their tax burden based on personal income levels and other relevant factors. Additionally, these sites often publish guidelines and updates on tax laws that can affect how tax burdens are calculated.

Key takeaways

  • Tax burden provides a macro-level view of state tax climates but may not reflect individual liabilities.
  • States with natural resources like Alaska often have lower tax burdens, whereas states with extensive public services like New York see higher taxes.
  • Understanding tax structures is crucial for financial planning, especially when considering relocating.
  • For precise tax estimates, consider individual circumstances and consult with a tax professional.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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