Are you considering a move out of state? A majority of families generally look for a new home where there is a warmer climate, closer to friends and relatives, or a place where they can find a healthier lifestyle.
No matter your reason for moving, as you are looking at the cost of housing for different areas, also consider the impact of state and local taxes. In order to help make your search for a new home easier, Kiplinger has compiled a list of the 10 most tax-friendly states for middle-class families.
10. Delaware: The income tax for this state is relatively high, however, they have low sales and property taxes. For example, the top income tax rate for the state is 6.6% for those with a taxable income of more than $60,000. But what makes this state an option is that it has no sales tax. Delaware also has the sixth-lowest median property tax rate in the nation. For example, a $300,000 home would be $1,704 per year.
- State Income Tax Range: 2.2% (on taxable income from $2,001 to $5,000) to 6.6% (on taxable income above $60,000)
- Average Combined State and Local Sales Tax Rate: No state or local sales tax
- Median Property Tax Rate: $568 per $100,000 of assessed home value
9. Arizona: The highest tax rate for middle-income families in this state is only 2.98%. Arizona residents also have low property taxes. The median property tax on a $300,000 home is estimated to be $1,932 per year. But the average combined state and local tax is 8.4%, which makes Arizona the 11th-highest state in the US.
- State Income Tax Range: 2.55% (on taxable income up to $27,272 for single filers; up to $54,544 for joint filers) to 2.98% (on taxable income over $27,272 for single filers; over $54,544 for joint filers)
- Average Combined State and Local Sales Tax Rate: 8.4%
- Median Property Tax Rate: $644 per $100,000 of assessed home value
8. California: If you are considered a rich individual, California might not be the state for you. However, for middle-class families, this state could be a good option if they are looking to save money on taxes. Middle class families fall into California’s 6% tax bracket. While property taxes are expensive in small areas of the state, there are places that are below average. For example, for a $300,000 home, the statewide estimated property tax is $2,226. This makes California the 16th-lowest state in the country. Unfortunately, if you choose California you may notice that sales tax is one area where you will lose. The sales tax rate is 7.25% which is the highest in the nation. It is important to note that local taxes can add up to another 3%.
- State Income Tax Range: 1% (on taxable income up to $9,325 for single filers; up to $18,650 for joint filers) to 13.3% (on taxable income over $1 million for single filers; over $1,250,738 for joint filers) (Note: The thresholds listed are for the 2021 tax year)
- Average Combined State and Local Sales Tax Rate: 8.82%
- Median Property Tax Rate: $742 per $100,000 of assessed home value
7. Washington: This state does not have any income tax. Unfortunately, the sales tax rate is 6.5% which is well above average compared to other states. The combined state and local tax rate is 9.29% which is the fourth-highest in the country. However, property taxes are considered modest as a $300,000 home will run you a tax bill of about $2,874.
- State Income Tax Range: None
- Average Combined State and Local Sales Tax Rate: 9.29%
- Median Property Tax Rate: $958 per $100,000 of assessed home value
6. North Dakota: This state has a relatively small income tax rate for mid-level earners. For the 2022 tax year, qualifying residents can also receive a $350 tax credit ($700 for a married couple). Thanks to the temporary tax credit, middle-class families wouldn’t owe any income taxes. The sales tax is also below average. The rate is at 5% and local taxes go up to 3.5%. However the property taxes for North Dakota are not the most reasonable as a $300,000 home is estimated to be $2,967 per year.
- State Income Tax Range: 1.1% (on taxable income up to $40,525 for singles filers; up to $67,700 for joint filers) to 2.9% (on taxable income over $445,000) (Note: The thresholds listed are for the 2021 tax year)
- Average Combined State and Local Sales Tax Rate: 6.96%
- Median Property Tax Rate: $989 per $100,000 of assessed home value
5. Alaska: Similar to Washington, Alaska is one of the six states that does not impose an income tax. They are also one of the five states with no state sales tax. However, property taxes are on the higher side. For a $300,000 home your tax bill will cost you $3,636 per year. Another reason Alaska is on the list is because the state provides residents who have lived in the state for a full year an annual “Permanent Fund Dividend”. The 2021 dividend was $1,114.
- State Income Tax Range: None
- Average Combined State and Local Sales Tax Rate: 1.76%
- Median Property Tax Rate: $1,212 per $100,000 of assessed home value
4. Tennessee: Just like Alaska, there is no income tax in Tennessee. The property taxes in Tennessee are also reasonable for middle-class families. You should expect to pay about $2,055 per year for a $300,000 home, which is well below the national average. Unfortunately, Tennessee does have the second highest combined state and local tax rate in the nation at 9.547%.
- State Income Tax Range: None
- Average Combined State and Local Sales Tax Rate: 9.547%
- Median Property Tax Rate: $685 per $100,000 of assessed home value
3. Florida: Florida is another great option for middle-class families as it has no income tax. The property taxes are also close to the national average as your tax bill for a $300,000 home is estimated to be $2,577. The combined state and local state tax rate, however, is just average as it is 7.01%.
- State Income Tax Range: None
- Average Combined State and Local Sales Tax Rate: 7.01%
- Median Property Tax Rate: $859 per $100,000 of assessed home value
2. Nevada: One big perk of living in Nevada is having no income tax. They also have the seventh-lowest median property tax rate in the nation. For example a $300,000 home would cost you $1,716 in property taxes each year. Although there are many benefits to living in Nevada, the sales tax rate is not one of them. The average combined state and local tax rate is 8.23%. This makes it the 13th-highest in the US.
- State Income Tax Range: None
- Average Combined State and Local Sales Tax Rate: 8.23%
- Median Property Tax Rate: $572 per $100,000 of assessed home value
1. Wyoming: The most tax-friendly state for middle-class families is Wyoming due to having no income tax, a low combined state and local tax rate of 5.22%, and having a low property tax. This state has the 11th-lowest property tax amount in the county. For middle-class families a $300,000 home would be about $1,815.
- State Income Tax Range: None
- Average Combined State and Local Sales Tax Rate: 5.22%
- Median Property Tax Rate: $605 per $100,000 of assessed home value
If you are interested in learning more about tax specifics for each state, check out Kiplinger’s State-by-State Guide to Taxes on Middle-Class Families to learn more about rates for the average American family.
