With the April 15 tax filing deadline approaching, a new study from WalletHub sheds light on which states have the highest and lowest state and local tax rates, highlighting where residents give the most and least back to their state governments.
“Every year during tax season, Americans are reminded of how much of their hard-earned income goes to taxes. However, living in the right state can ease the burden, as taxpayers in the least expensive states pay significantly less than those in the most expensive ones,” said Chip Lupo, an analyst at WalletHub.
The study analyzed effective rates for income tax, real estate tax, vehicle property tax, and sales and excise tax across all 50 states and the District of Columbia. These individual rates were then combined to determine the total effective state and local tax rate based on the median U.S. household income.
Illinois ranked as the state with the highest total effective tax rate at 16.58%, with households earning the state’s median income paying roughly $12,270 annually in state and local taxes. New York followed closely behind, with a total effective tax rate of 14.74%, and its residents paying an average of $13,774 each year. New Jersey residents paid the highest annual amount, averaging $15,032 in state and local taxes.
On the other end of the spectrum, the lowest tax states were Alaska, Delaware, Wyoming, Idaho, and Montana, where residents enjoy significantly lower tax burdens.
“People consider many factors when deciding where to live, such as job opportunities, proximity to family, housing costs, and school quality. While taxes may not be the primary factor for most, there is growing evidence that taxes significantly impact relocation decisions, especially among high-income earners like professional athletes and entertainers,” noted Stephen Lusch, Ph.D., associate professor of accounting at Texas Christian University.
Research indicates that tax considerations have become even more relevant in recent years, particularly as remote work has enabled greater mobility. States with high tax rates, such as New York and California, have seen residents move to lower-tax states like Texas and Florida, where they can retain more of their earnings.
With tax season in full swing, being informed about your state’s tax rates can help you plan effectively. Whether you’re considering a move or simply looking for ways to optimize your tax strategy, understanding where your state ranks can provide valuable insight into how much of your income is going toward taxes.
