A report from the personal finance site FinanceBuzz was recently completed. It shows the average combined federal and state income taxes paid by residents of all fifty states.
The report illustrates how tax rates and incomes interact. States with the highest effective tax rates tend to have higher tax rates and larger median incomes.
States with the lowest tax rates generally have no income tax and lower incomes. An “effective” tax rate is the percentage of annual income that you pay as tax or total tax divided by income.
Oregonians have a relatively high median income; for individual taxpayers, it was $65,249. Based on that income and relatively high state taxes, the report found that the typical Oregonian faces a total tax burden of $15,925, or 24.4% of their income.
Massachusetts has the second-highest individual tax burden: $18,538 in total tax, which is 23.5% of the state’s median individual income of $78,811.
Florida has the lowest individual tax rate. With a median income of $54,375 and no state taxes, the typical Floridian will pay $8,557 in tax, or 15.7% of their income.
The second-lowest tax burden falls on Nevada. That state, too, has no income tax, but its median income is slightly higher than Florida’s at $54,796.
When I looked at the report, I was surprised to see that Illinois wasn’t even in the top tier. Other states that have a higher effective income tax rate than Illinois include:
Maryland – 22.4%
New York – 22.09%
New Jersey – 21.46%
Minnesota and Virginia – 21.43%
And the Land of Lincoln came in at 21.29%
Let me leave you with this…
This time of year I always have discussions with clients who are thinking about leaving our state because of the higher taxes that we pay. And when you add in Property taxes, Sales Taxes, and other fees like vehicle stickers, we’re certainly paying more than most.
However, everyone must consider that running a state costs a certain amount of money, regardless of where one lives. States with zero income tax rates increase other taxes and fees to compensate for the difference.
If they give you a break in one place, they take it back in another.
Florida is a perfect example. Property, fuel, and local sales taxes have increased substantially in that state. When you look at the cost of insurance or other HOA Fees, many of my Florida clients are leaving the Sunshine State for greener pastures.
But there are social aspects to consider as well.
I’ve had a couple of clients go through the religious experience of leaving Chicagoland only to return a couple of years later. One went to Texas and the other went to Tennessee.
For both, it was a matter of culture shock. If you don’t know how to Two-Step, how much can there possibly be to do in West Texas on a Saturday Night?
Go ahead. Try to get some decent deep dish or hot dog in Tennessee. I dare you.
In both instances, relocating and ultimately returning cost these families an enormous amount of money. It was certainly more than any taxes they might have saved.
So think about it. Often, the money becomes irrelevant.
As always, if you’re having difficulties with your accounting and tax work, we’d love to hear from you.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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