Business Guides

Tax Rates: Best And Worst States By Income Bracket

A March 23rd report from demographic research firm WalletHub examines state and local tax data to determine the best and worst states in terms of effective tax rate for low income, middle income and high income residents. Not surprisingly, Alaska, with its significant oil and gas revenues, has the lowest effective tax rate of all states in all categories, but after that, the results may surprise you.

Source: WalletHub

State and local taxes are often regressive

According to the latest report from the Institute on Taxation & Economic, many forms of tax (including payroll taxes, sales taxes and some state and local taxes) are regressive, meaning more of these taxes are paid by low- and middle-income Americans than by wealthier families. In its report, WalletHub highlights the states with the least and the most regressive taxation systems.

Source: WalletHub

Alaska, Wyoming, Montana and Delaware have lowest effective tax rates

Alaskans of all income levels enjoy the lowest effective tax rates in the nation. The effective tax rate in Alaska for low income individuals is 5,4%, the rate for middle-income individuals is 4.5% and that of high income individuals is a mere 3.83%. Wyoming came in second place nationwide, with a 7.68% effective tax rate for low income people, a 6.65% rate for mid-income and a 3.98% rate for wealthier families. Delaware also offers low effective tax rates across the board at only 5.43% low-income folks, 5.7% for middle-income people and 6.14% for high-income individuals. Montana also has relatively low effective tax rates, at 6.10% for low income people, 6.59% for middle-income and 6.42% for high-income families.

effective tax rates

Connecticut, Arkansas, Hawaii and New York have highest effective tax rates

Connecticut has among the highest effective tax rate for all income levels, and in fact has the second highest rate of any state for high-income earners at 11.19%. The effective tax rate for low-income earners in Connecticut is 10.04%, and the rate for middle-income folks is 10.77%. Arkansas also has high effective tax rates across all income levels, at 11.46% for low-income individuals, 11.29% for middle-income earners and 9.16% for high-income individuals. Hawaii has the second highest effective tax rate for low-income families at 12.30%, the fourth worst rate for mid-income people at 10.86 and the 20th worst for wealthy folks at 8.72%. New York State is ranked 43rd in effective tax rate for low-income individuals at 10.80%, and in last place for both middle- and high-income earners at 12.41% and 12.40%, respectively.

effective tax rates