How State Income Taxes Work

The Income Tax Burden

Before moving, retirees should take time to consider the tax burden of living in a particular state.
Before moving, retirees should take time to consider the tax burden of living in a particular state.
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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 2008, the state with the highest individual income tax burden was New York. In New York, you'll pay an average of $40.59 in individual income taxes for every $1,000 you make [source: Colorado Legislative Council]. That might not seem like very much, but remember that this amount is just for your state income taxes -- your federal income taxes are much higher, and there are still many other types of taxes you have to pay in addition to this.

The next four most expensive states are Massachusetts, Oregon, California and Minnesota [source: Colorado Legislative Council]. The states with the lowest individual income tax burdens are of course the seven states that do not charge an income tax at all.

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 include all of the taxes that are paid to the state -- including sales tax, property tax, and even corporate income taxes. In that case, Alaska has the highest tax burden, with an average of $309 paid in taxes for every $1,000 of income. The next four most expensive states in total taxes are Vermont, Hawaii and North Dakota. The least expensive states are New Hampshire, South Dakota, Colorado and Texas [source: Colorado Legislative Council].

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

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More Great Links


  • "Annual General Revenues Receipts by Source." Florida People's Budget. (March 1, 2010).
  • Colorado Legislative Council. "How Colorado Compares in State and Local Taxes." July 6, 2009. (March 5, 2010).
  • Consensus Revenue Estimating Group. "Wyoming State Government Revenue Forecast." (March 1, 2009).
  • Nevada Department of Administration: Division of Budget and Planning. "State of Nevada: Executive Budget in Brief." (March 1, 2010)
  • Sloane, Leonard. "Your Taxes; State Laws on Where You Live and Earn." The New York Times. February 27, 1994. (March 1, 2010)
  • Tax Foundation. "State Individual Income Tax Rates, 2000-2009." (March 1, 2010).
  • Tax Policy Center. "State and Local Tax Policy: How do state and local income taxes work?" (March 3, 2010).
  • United States Bureau of the Census. "State and County QuickFacts." (March 1, 2010).
  • United States Bureau of the Census. "State Government Finances: 2008." (March 2, 2010)
  • United States Department of the Treasury. "Fact Sheets: Taxes." (March 4, 2010).
  • Wilkes, Duncan. Personal Interview. February 28, 2010.
  • Worldwide Tax. "Tax Rates Around the World" (March 2, 2010)