State tax rates comparison – sales, income & social security tax
We all pay roughly the same percentage of tax to the federal government, but each state has the ability to setdifferent types of taxes on its citizens, including property taxes, sales taxes, and income taxes. This means that the amount of taxes you’d pay if you lived in Florida, may be vastly different than the amount you’d pay if you lived in California.
Over time, different states have developed their own systems of raising revenue. For some, property and sales taxes are the main source of revenue, and several states don’t collect income tax at all. Depending on your long-term financial goals, you might start looking at living in another state with renewed interest. Or at the very least, take a tip from my sister-in-law and do your Christmas shopping in a state with no sales tax.
Here’s a summary of how different states tax their citizens in various ways.
Sales Tax Rates
The only states that don’t collect sales tax are Alaska, Delaware, Montana, Oregon, and New Hampshire. Colorado is the lowest rate among states that have a sales tax at 2.9%. Several states don’t permit local governments to add on their own taxes, but most do.
The states that don’t allow extra local sales taxes, and thus have the same sales tax rate throughout the state, are Connecticut, District of Columbia, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Rhode Island, and West Virginia.
While some local areas will have additional higher rates, some states start out with a significantly higher minimum state rate. So who’s the winner of the highest minimum state sales tax rate?
- California (8.25%)
- Indiana, Mississippi, New Jersey, Rhode Island, Tennessee (7%)
- Minnesota (6.875%)
- Nevada (6.85%)
- Arizona (6.6%)
- Washington (6.5%)
- Kansas (6.3%)
- Texas and Illinois (6.25%)
So if you’re planning a big shopping spree, you might want to avoid those states! In some of the no-sales-tax states, you could save a bundle on a big purchase like a car. Call ahead to ask what their specific local sales tax rates might be if it’s not a state with a flat sales tax.
Personal Income Tax Rates
Most states do collect income taxes, but one reason that Florida and Nevada are such big retiree hot spots (other than the nice weather) is that they don’t collect income taxes at all. In addition, Alaska, South Dakota, Texas, Washington, and Wyoming also won’t ask you for anything come thetax filing deadline in April, and New Hampshire and Tennessee only collect income taxes on passive income from interest and dividends.
Of the states that do collect income tax, most of them base it off your federal income tax return and will allow you to apply any relevant tax deductions and credits. Several states also allow you to deduct the federal income tax you paid – Alabama, Iowa, Louisiana, Missouri, Montana, North Dakota, Oklahoma, Oregon, and Utah.
Taxes on Social Security
Another way that retirees can manage their tax burden with a relocation is to choose a state that doesn’t tax your Social Security benefits. A slight majority of the states, including the District of Columbia, don’t tax Social Security benefits at all! These states include Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin. While the federal government may tax your Social Security benefits, if you have other income aside from Social Security, these states won’t.
States that do tax Social Security use one of three methods:
- Minnesota, Nebraska, North Dakota, Rhode Island, Vermont, and West Virginia will only tax Social Security in the amount that the federal government will tax it.
- You’ll only be taxed on your Social Security benefits in Connecticut, Iowa, Kansas, Missouri, and Montana if you have other income above a certain, relatively high amount. Iowa is in the process of phasing out the Social Security tax and Social Security will be tax-free there by 2014. Missouri is also phasing out Social Security taxes. And for Kansas residents, you don’t pay taxes on Social Security income if your adjusted gross income is less than $75,000, which is one of the highest state allowances.
- Colorado, New Mexico and Utah require that federally untaxed Social Security benefits be added back to your federal adjusted gross income to determine the amount that your state taxes will be based on, but then allow you to exclude certain amounts from your income depending on your age.
Retired military personnel also get tax breaks in these states, which allow some or all military pension benefits to go untaxed: Alabama, Alaska, Florida, Hawaii, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin, and Wyoming.
Comparative Tax Burden
So with all these differences between states, do any state’s citizens come out significantly ahead or behind of the pack? It depends on your financial situation, whether or not you own a home, the source of your income, and how much income you have.
A 2009 survey done by the District of Columbia’s finance office attempted to calculate the tax burden for a family of three making $25,000, $50,000, $75,000, $100,000, or $150,000 per year in the largest city in each state. In this survey, the family was assumed to own a home (except at the $25,000 income level, where they were assumed to rent).
The numbers below show the percent of total income that the family paid towards taxes, including income, property, auto, and sales taxes for the top and bottom five cities in each category. Where does your state fall? Do you think you’re getting off light or getting hit hard?
Highest State Taxes
| $25,000 | $50,000 | $75,000 | $100,000 | $150,000 |
|---|---|---|---|---|
| Philadelphia, PA 16.4% | Bridgeport, CT 20.7% | Bridgeport, CT 19.0% | Bridgeport, CT 18.0% | Bridgeport, CT 15.7% |
| Birmingham, AL 14.5% | Philadelphia, PA 13.7% | Philadelphia, PA 12.4% | Philadelphia, 12.1% | New York, NY 12.1% |
| Louisville, KY 13.6% | Baltimore, MD 11.6% | Des Moines, IA 11.4% | New York, NY 11.7% | Des Moines, IA 11.3% |
| Charlotte, NC 13.4% | Detroit, MI 11.4% | Detroit, MI 11.2% | Des Moines, IA 11.6% | Portland, ME 10.9% |
| Honolulu, HI 13.1% | Des Moines, IA 11.3% | New York, NY 10.9% | Portland, ME 11.4% | Philadelphia, PA 10.9% |
Lowest State Taxes
| $25,000 | $50,000 | $75,000 | $100,000 | $150,000 |
|---|---|---|---|---|
| Billings, MT 7.6% | Cheyenne, WY 4.4% | Anchorage, AK 3.8% | Anchorage, AK 3.2% | Anchorage, AK 2.7% |
| Fargo, ND 49 7.8% | Anchorage, AK 4.4% | Sioux Falls, SD 4.8% | Cheyenne, WY 4.3% | Cheyenne, WY 3.4% |
| Manchester, NH 8.4% | Jacksonville, FL 4.9% | Cheyenne, WY 4.0% | Jacksonville, FL 4.5% | Jacksonville, FL 3.7% |
| Baltimore, MD 8.7% | Sioux Falls, SD 5.2% | Sioux Falls, SD 4.8% | Sioux Falls, SD 4.7% | Sioux Falls, SD 3.7% |
| Anchorage, AK 8.7% | Billings, MT 5.6% | Fargo, ND 5.5% | Manchester, NH 5.1% | Manchester, NH 4.0% |
Final Word
If you’re planning a move to a new state, it might be worth studying the tax burden of your top three choices and see which is optimal financially for your family – likewise, if you’re planning a big purchase. It’s better to buy a $22,000 car in a state with no sales tax than in a place like California, where you’d pay 8.25% for the privilege.
How much state taxes do you pay in your area and how does it compare to other locations in the U.S.?
Author:Â Kira Botkin
Tags: income tax 2011, sales tax 2011, social security tax 2011, tax tips, tax tips for 2011
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