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How State Income Taxes Work

By: Caitlin Uttley & Melanie Radzicki McManus  | 

The Income Tax Burden

retired couple standing by RV
Before moving, retirees should take time to consider the tax burden of living in a particular state.
Digital Vision/ Thinkstock

One thing people look at when comparing state taxes is the tax burden of living in each state. The tax burden is the total amount you would pay in taxes. Because each state has a different rate of income tax (and different rates of sales and other taxes), the tax burden can vary greatly from state to state. If you're nearing retirement and want to know which state you'll pay the highest income taxes in, comparing tax burdens is a good way to find out.

There are several ways to look at the state tax burden. One way is to look at the tax burden just for personal income taxes. That means comparing states based on how much the average person in each state pays in income taxes as a percentage of his or her income. In 2020, the state with the highest individual income tax burden as a percentage of personal income was New York. The next four most expensive states were Oregon, Maryland, Minnesota and California. The states with the lowest individual income tax burdens were, of course, the eight states that did not charge an income tax at all.

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Another way to look at the tax burden, and the most useful if you're using it as a basis for deciding where to live, is to look at a state's overall tax burden: property, individual income, and sales and excise taxes. In that case, New York had the highest tax burden in 2020, at 12.28 percent, with the next four most expensive states being Hawaii, Vermont, Maine and Minnesota. The states with the least expensive overall tax burden in 2020 were Alaska, at 5.16 percent, followed by Delaware, Tennessee, Wyoming and Florida.

For more information about income taxes, tax deductions and taxes in general, take a look at the links that follow.

State Income Taxes

What are the income brackets for 2020?
For the 2020 tax year (and filing in 2021), the IRS's tax brackets are: 10 percent for individual incomes totaling $9,875 or less. 12 percent for individual incomes totaling over $9,875. 22 percent for individual incomes totaling over $40,125. 24 percent for individual incomes totaling over $85,525. 32 percent for individual incomes totaling over $163,300. 35 percent for individual incomes totaling over $207,350. 37 percent for individual incomes totaling over $518,400.
Which state has the highest taxes in the US?
In 2020, California had the highest tax rate in the entire country.
Do California residents pay state income tax?
Yes, California residents must pay state income tax. You'll be taxed on income earned both in the state and outside of the state.
What is California's income tax rate 2020?
The 2020 California tax brackets and rates for single filers are: 1 percent for incomes less than $8,809. 2 percent for incomes of $8,809 or more. 4 percent for incomes of $20,883 or more. 6 percent for incomes of $32,960 or more. 8 percent for incomes of $45,753 or more. 9.3 percent for incomes of $57,824 or more. 10.3 percent for incomes of $295,373 or more. 11.3 percent for incomes of $354,445 or more. 12.3 percent for incomes of $590,742 or more. 13.3 percent for incomes of $1,000,000 or more.
How do I calculate my overall tax rate?
To figure out your overall tax rate, you'll need to find the average of all of the tax rates you'll pay. The quickest and easiest way to do this is by looking at your tax return for last year and taking the total tax you owe (it's found on line 24 of IRS Form 1040), then dividing that number by your taxable income (which is found on line 15).

Originally Published: Mar 18, 2010

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Sources

  • Cammenga, Janelle. "To What Extent Does Your State Rely on Individual Income Taxes?" Tax Foundation. Feb. 10, 2021. (Feb. 22, 2021) https://taxfoundation.org/state-income-tax-reliance-2021/
  • Loughhead, Katherine. "State Individual Income Tax Rates and Brackets for 2021." Tax Foundation. (Feb. 22, 2021) https://files.taxfoundation.org/20210217114725/State-Individual-Income-Tax-Rates-and-Brackets-for-2021.pdf
  • McCann, Adam. "2020's Tax Burden by State." Wallet Hub. June 24, 2020. (Feb. 22, 2021) https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494
  • Moreno, Tonya. "States Where Cities and Counties Levy Additional Income Taxes." The Balance. Feb. 3, 2021. (Feb. 22, 2021) https://www.thebalance.com/cities-that-levy-income-taxes-3193246
  • Orem, Tina. "2020-2021 Tax Brackets and Federal Income Tax Rates." Nerd Wallet. Nov. 16, 2020. (Feb. 22, 2021)
  • Orem, Tina. "2020-2021 Tax Brackets and Federal Income Tax Rates." Nerd Wallet. Nov. 16, 2020. (Feb. 22, 2021) https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
  • Tax Policy Center. "State and Local Tax Policy: How do state and local income taxes work?" (March 3, 2010). http://www.taxpolicycenter.org/briefing-book/state-local/specific/income.cfm
  • Wilkes, Duncan. Personal Interview. February 28, 2010.