What It Takes to Make the Top 1% Income Club In The 10 Wealthiest U.S. States

How much do the 1% wealthiest families make a year?

American wealth is becoming increasingly concentrated at the very top of the economic ladder. The top 1% of families hold over a third of the total wealth in the U.S. – up from 27% in 1989 – according to a Congressional Budget Office report from 2022. The bottom half of all households, meanwhile, control just 2% of the total wealth.

But who’s in this group of ultra-wealthy taxpayers? Nationally, households with an annual income of $652,657 or higher are considered among the top 1%. They earn more than eight times as much as the median household, which sits at around $75,000. However, the threshold income to make in the top 1% (a.k.a 99 percentiles) at the state level varies from $370k to $950K depending on where you live.

Key Findings

Connecticut has the highest floor for the top 1%. You need to earn a whopping $952,902 to be in the top 1% of households in Connecticut – more than any other state. Massachusetts ($903,401) and California ($844,266) have the second- and third-highest thresholds for entering the top 1%, respectively.

Washington, D.C.’s top 1% earn more than $1 million. If our nation’s capital were a state, it would rank No. 1 overall in our study. That’s because households aren’t considered part of the top 1% if they don’t earn at least $1,013,698 in 2023.

Southern states have the lowest income thresholds. While Northeastern states like Massachusetts and New Jersey have some of the highest income thresholds for the 1%, it takes considerably less income to be considered in the top 1% in many Southern states. For example, residents in Virginia need just $367,000 to reach the top 1% – the least amount of income across our study. Six of the 10 states with the lowest income thresholds are located in the Southeast.

Where the top 1% pays the most and least in taxes. Connecticut is home to the highest effective tax rate for top earners (28.4%). On the other hand, Arkansas taxes the top 1% at an average rate of just 21.11% – less than any other state.

Income thresholds vary in America’s four largest states. It takes $844,266 and $776,662 to be in the top 1% in California and New York, respectively. But households in Florida and Texas need to earn much less to be considered among the top 1% – $694,987 and $631,849, respectively.

10 hardest states to break the top 1% income club

Connecticut

The Constitution State is one of two states where households must earn more than $900,000 per year to reach the top 1%. In 2023, the ultra-wealthy group of households make $952,902 – $300,000 more than the national average. Meanwhile, the top 1% pays the highest effective tax rate across our study (28.4%).

Massachusetts

You’re in the top 1% in Massachusetts if your household earns at least $903,401 per year. These high earners are subject to a 27.15% effective tax rate – fourth highest across our study. Zooming out, only households that earn at least $347,809 per year are considered among the top 5%. That’s the highest 5% threshold of any state.

California

The most populous state in the country has the third-highest threshold for the top 1% of taxpayers. In 2023, households earning at least $844,266 per year are considered among California’s top 1%. On average, these high earners are taxed at a rate of 26.95%.

New Jersey

In the Garden State, you’ll need an annual household income of $817,346 to be in the top 1%. Taxpayers at the very top of the income ladder pay an average effective tax rate of 28.01% – the third highest across our study. Meanwhile, New Jersey also has the second-highest floor for the top 5% – $333,114.

Washington

Washington is the fifth and final state in which households must earn at least $800,000 per year to be considered in the top 1%. In the Evergreen State, households that make $804,853 are among the top 1% in 2023. These high earners are taxed at an average rate of 25.99%, thanks in part to no state income tax in Washington.

New York

New York residents earning over $776,662 in 2023 are considered part of the top 1%, while the threshold for the top 5% is significantly lower at $276,092. The top 1% of taxpayers in the Empire State are taxed at an average rate of 28.29%, which is second-highest across the country.

Colorado

In Colorado, you’ll need to earn at least $709,092 in 2023 to be considered among the top 1% of taxpayers. These high earners pay an average tax rate of 25.86% – 11th highest across our study. However, you need to earn more money in Colorado – $293,083 – than you do in New York to enter the top 5% income bracket.

Florida

Like Washington, Florida is one of nine states that doesn’t levy income taxes. As a result, the top 1% of households in the Sunshine State are taxed at an average rate of 25.82%, lower than 12 other states. To reach the top 1% in Florida, households must earn $694,987 in 2023. The income threshold for reaching the top 5% is much lower – $242,996. In fact, that’s less than 17 other states.

Illinois

In the Land of Lincoln, households must earn at least $660,810 to be among the top 1%. Those at the very top of the income ladder in Illinois are taxed at an average rate of 26.35% – fifth highest across our study.

New Hampshire

The top 1% of households in New Hampshire earn at least $659,037 in 2023 and get taxed at an average rate of 26.25%. While the Granite State doesn’t tax wages or salaries, it does levy a 5% tax on interest and dividends.

Income gap by state

While the ranking of states by 1% threshold generally aligns with income inequality, there are some states that exhibit higher levels of inequality than what their 1% threshold might suggest. In these states, the disparity between the top 1% and the rest of the population is even more pronounced.

One such example is New York. With a 1% threshold of $776,662, households in the top 1% earn significantly higher incomes compared to the median household income of $71,117. The difference between the two is a staggering $705,545. This indicates a significant concentration of wealth among a small fraction of the population in New York, leading to greater income inequality.

Another state that stands out in terms of inequality is California. While its 1% threshold is one of the highest at $844,266, the median household income is relatively lower at $78,672. This results in a substantial difference of $765,594 between the top 1% and the median household income. Despite the higher threshold, the income gap in California is significant, indicating a higher level of inequality.

It’s important to note that while the 1% threshold provides insight into the highest-earning households, it doesn’t capture the full picture of income inequality. Other measures, such as the Gini coefficient and the income share of the top 1%, can provide a more comprehensive understanding of inequality within a state or across the nation.

What is the Gini coefficient of the United States?

The Gini coefficient is a statistical measure used to quantify income inequality within a population. It is represented by a value between 0 and 1, where 0 represents perfect equality (all individuals have the same income) and 1 represents maximum inequality (one individual possesses all the income while others have none).

The Gini coefficient is derived from the Lorenz curve, which is a graphical representation of the cumulative income distribution. By comparing the Lorenz curve to the line of perfect equality, the Gini coefficient is calculated as the area between the two curves divided by the total area below the line of perfect equality.

A Gini coefficient of 0 indicates perfect income equality, while a coefficient of 1 implies extreme income inequality. Values between 0 and 1 reflect varying degrees of inequality. Generally, higher Gini coefficients indicate a greater disparity in income distribution. The United States has a Gini coefficient of 0.48 as of the lates Census Bureau data.

The Gini coefficient is widely used by economists, policymakers, and researchers to assess and compare income inequality across different countries, regions, or population groups. It provides a quantitative measure that helps in understanding the distribution of income and the extent of inequality within a given population.

Gini coefficient by state

Based on the Gini coefficient values for each state, we can gain insights into the level of income inequality across different regions in the United States. Here are some observations.

High income inequality

States such as New York, Louisiana, California, Connecticut, and Florida exhibit relatively high Gini coefficients, indicating significant income inequality within these states.

Variations in income inequality

While the Gini coefficient of the United States as a whole is 47.4, individual states show varying levels of income inequality. Some states, like New Mexico, Tennessee, and Alabama, have Gini coefficients above the national average, suggesting higher disparities in income distribution.

Moderate income inequality

Several states, including Colorado, Montana, Washington, Kansas, and Maryland, have Gini coefficients below 46, indicating relatively lower income inequality compared to the national average.

Low income inequality

Alaska stands out as the state with the lowest Gini coefficient, suggesting relatively lower income inequality within the state.

Overall, the Gini coefficient rankings align with our previous discussion about the threshold for the top 1% and income inequality across states. States with higher thresholds for the top 1% tend to have higher Gini coefficients, indicating greater income disparities. However, it’s important to note that the Gini coefficient provides a snapshot of income inequality and does not capture other socioeconomic factors that contribute to overall well-being and quality of life within each state.