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10 States With The Highest Taxes

Even though tax season has come to an end, it's still important to consider how taxes where you live, or where you are considering living, may impact prosperity and overall quality of life. After last week's newsletter about the the most tax-friendly places in the U.S., you may be wondering about the places in the U.S. that are the least tax-friendly. Thankfully, we've compiled a list that has just the information you may be eager to consume. Scroll down to find out about the places in the U.S. that do the most damage to your wallet during tax season!

Methodology and Assumptions
In this analysis, we calculated the taxes for a person with the median U.S. income, which is $60,000.
For income tax calculations, we used the tax year 2019 tables and assumed the person is single and took the standard deduction.
To calculate the amount of sales taxes, we combined the tax rates for the state, county, and local jurisdictions and multiplied this by the portion of a person's income which is spent on taxable goods and services according to the Bureau of Labor Statistics (20.7%).
Real estate taxes include the property tax calculated using the state's median home cost and we also added the cost of the transfer fee for that property, spread over the average 13-year period a homeowner owns their place.
The annual taxes on automobiles can vary considerably so we included the sales tax (spread over a six-year period), the annual registration fee, and the amount of annual auto property taxes.

Not included in our analysis were excise taxes on goods such as gasoline, cigarettes, liquor, wine, and beer.  We've included these in our spreadsheet, with the maximum corporate income tax rate and taxation of Social Security.

Click here for our spreadsheet showing the tax rates for all 50 states and much more detailed information.

1. California
With beautiful beaches, countrysides, and plenty of other opportunities for careers and entertainment, California has many benefits but tax-friendliness is definitely not one of them. With a hefty effective state tax rate of 18.75%, residents have to plan for and factor in the reality that a substantial percentage of their finances will go towards taxes each year. The sales tax rate in California is also the highest in the country so that's an important component to consider as well. The personal income tax rate for the states wealthiest is the highest in the country. One benefit of the state is that California has below-average property taxes due to Proposition 13, the 1978 measure that limited increases to no more than 2 percent a year.

2. New Jersey
Although the state may be aesthetically pleasing and home to some of the most talented people, New Jersey is right behind California with an extremely high effective state tax rate of 18.72%. With an average of $8,273, real estate taxes are also the highest in the country. One benefit of New Jersey is that it is moderately tax-friendly toward retirees. Social Security income is not taxed but withdrawals from retirement accounts are partially taxed. 

3. New York
The Big Apple has many options for those who are career-driven or like to enjoy the arts but the high taxes have the potential to complicate financial matters for residents. The state has an effective tax rate of 16.79% and the state income tax is one of the highest in the entire country. Sales taxes average at $1,016 per year, which is a very high number compared to many other states in the U.S. New York is moderately tax-friendly toward retirees. Social security income is not taxed but withdrawals from retirement accounts are partially taxed. 

4.  Massachusetts
Home of The Freedom Trail and the Cape Cod Beaches, Massachusetts is right behind New York with an effective state tax rate of 16.62%. With an average rate of $5,538, real estate taxes are also very high. Massachusetts is moderately tax-friendly towards retirees. Social security retirement benefits and income from public pension are fully exempt from taxation. Income from an 401(k), IRA, 403(b) or any other form of retirement savings account is taxed at the state income tax. 

5. Rhode Island
Known as the Ocean State and the smallest state in size in the United States, Rhode Island has an effective state tax rate of 15.67%.  The state also has a reasonably high average real estate tax rate of $5,236. One interesting fact about Rhode Island's taxes is that it's one of the few states with a single, statewide sales tax. Rhode Island taxes all retirement income sources and it is one of the few states to tax Social Security retirement benefits. Although, it does only tax Social Security income that is taxed at the federal level. The state has sales tax rates that are slightly higher than the national average.

6. Illinois
Known as the "Land of Lincoln", Illinois is close behind Rhode Island in terms of taxes with an effective state tax rate of 15.43%. Families in Illinois carry one of the heaviest tax loads in the United States so it's no wonder why Illinois is already losing people, with six consecutive years of population decline. With an average of $2,857, the state income tax is definitely on the higher end and also has some of the highest sales and property taxes in the country. One positive factor is that Social Security retirement benefits, pension income, and income from retirement savings accounts are all exempt from taxation. 

7. Connecticut
The state where the hamburger was invented, Connecticut has an effective state tax rate of 15.34%. With an average rate of $5,429, real estate taxes are also very high. The average sales tax rate is $788 and the average state income tax is $2,050. Connecticut is also not tax-friendly towards retirees.  Social Security income is partially taxed and withdrawals from retirement accounts are fully taxed. 

8. District of Columbia
Known for its many historic national monuments and famous museums like the Smithsonian Institution, the District of Columbia has effective state tax rate of 14.77%. Part of the reason the District pays so much in taxes is that there are a lot of high-income people that live in the state. The District of Columbia has a high sales tax average of $2,707 and is moderately tax-friendly toward retirees. Social Security income is not taxed but withdrawals from retirement accounts are fully taxed.

9. Vermont
Famous for Ben and Jerry's Ice cream, Vermont has an effective state tax rate of 13.44%. Real estate taxes are also on the higher end with an average of $5,001. Vermont taxes all types of retirement income as well, such as Social Security retirement benefits and income from retirement accounts. Sales taxes are below average. 

10. Oregon
Home of the deepest lake in the U.S., Crater Lake, Oregon has an effective state tax rate of 13.36%. Although Oregon has no sales tax, the state income tax average is $4,169, the highest on our entire list. Social Security retirement benefits are exempt from the state income tax but Oregon taxes income from retirement accounts like 401(k)'s and IRA's at the full state income tax rates. Property taxes are slightly above average.

Now that you're informed about the least tax-friendly places in the U.S., you may be curious to know about what taxes look like in the states we haven't mentioned. Look no further because we've compiled a spreadsheet with the tax rates for all 50 states as well as other much more detailed information. Just click here if you'd like to learn more.

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