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8 States With The Highest Income Tax Rates

Do you know what are the states with huge income tax rates? 

Moving to a new state might be the best option if you wish to be nearer to your grandkids, enjoy nicer weather, or spend less on housing. But when choosing whether or not to relocate, retirees sometimes forget to take local and state taxes into account.

The total amount of state and local taxes you owe can differ significantly from one location to another. For some people, the difference in taxes between two locations might represent a significant amount of money. So before deciding to move out, you should better check out the states with the highest income tax rates.

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#1 California

State income taxes apply to California residents. Since the state uses a progressive income tax system, your tax rate will increase as your income increases. The income tax rate for California is 13.3%.  In this state, the standard deduction is $4,803 for single taxpayers and $9,606 for those who are married. 

You must submit a state tax return if you earned money while living in California for any period of the tax year. If you didn’t reside in California yet worked for a business there, you could also need to file. The California State Franchise Tax Board will assist you in determining your eligibility for filing. There, among other things, you can submit your return online and pay your taxes.

#2 Hawaii

The state income tax ranges from 1.4% to 11%. The 1.4% applies to married couples that are filing jointly and have a taxable income of a maximum of $4,800 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $2,400.

The 11% applies to married couples that are filing jointly or to the surviving spouses that have a taxable income of a maximum of $400,000 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $200,000. 

Aloha State is well-known for its high cost of living, but retirees may find Hawaii to be a tax haven. The majority of pension income is exempt from state income taxes, as are Social Security benefits. However, Hawaii will tax any additional sources of income at rates as high as 11%.

#3 New York

The state income tax ranges from 4% to 10.9%. The 4% applies to married couples that are filing jointly and have a taxable income of a maximum of $17,150 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $8,500. The 10.9% applies to taxable income above $25 million.

In comparison to other states, New York’s income tax burden on regular retirees is less harsh. Military retirement income, Social Security benefits, and pensions from the federal and New York governments are all exempt.

But anything from a private retirement account (including pensions, IRAs, and 401(k) plans) or an out-of-state government plan that exceeds $20,000 is subject to taxation. New York’s income tax rates are quite high for extremely rich retirees, but they will begin to decline in a few years. The highest rate will decrease from 10.9% to 8.82% starting in 2028.

#4 New Jersey

The state income tax ranges from 1.4% to 10.75%. The 1.4% applies to taxable income up to a maximum of $20,000, and the 10.75% applies to taxable income above $1 million.

The Garden State maintained its position among the least tax-friendly states for seniors and other groups. Nevertheless, New Jersey has taken steps to lessen the burden of income tax on retirees, offering substantial deductions for income in retirement and a full exclusion for benefits from Social Security.

However, it is insufficient to compensate for New Jersey’s crippling property taxes, which are the highest in the nation, with residents paying a median of $2,471 in taxation per $100,000 of estimated home value. People in their retirement tend to leave the state in search of locations with lower taxes because of this.

#5 Oregon

The state income tax ranges from 4.75% to 9.9%. The 4.75% applies to married couples that are filing jointly and have a taxable income of a maximum of $7,300 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $3,650.

The 9.9% applies to married couples that are filing jointly or to the surviving spouses that have a taxable income of a maximum of $250,000 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $125,000. 

Social Security benefits are not taxed in Oregon, which certainly helps retirees pay less income tax. Other retirement income, however, is typically taxed, and Oregon’s rates of income tax can reach as high as 9.9%. There’s a retirement-income credit available to seniors, but it has some income requirements. Oregon’s lack of a sales tax is one positive aspect of its tax situation. In the state, there are no sales taxes to be paid on whatever you purchase.

If, however, you’re not that lucky to live in an inexpensive state and your income is not that good, you still must survive with what you have. That’s why we, at Retirement in America, kindly recommend this book written by Gregory Armstrong about 40 Ways to Live an expensive lifestyle with low funds. Hurry up because it has a good price on Amazon!

#6 Minnesota

The state income tax ranges from 5.35% to 9.85%. The 5.35% applies to married couples that are filing jointly and have a taxable income of a maximum of $41,050 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $28,080.

The 9.85% applies to married couples that are filing jointly or to the surviving spouses that have a taxable income of a maximum of $284,810 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $171,220. 

Retirees who are concerned about taxes can find some solace in the North Star State. The same amount of taxes apply to Social Security benefits as they do on your federal return, however, taxpayers who receive taxable Social Security benefits may be eligible to deduct several of their payments if their earnings are below a certain threshold. 

Additionally, some seniors qualify for a special income tax deduction. But pensions, aside from those received from the military, are taxable. IRA and 401(k) plan distributions are taxed as well.

Photo by Sean Pavone from Shutterstock

#7 Vermont

The state income tax ranges from 3.35% to 8.75%. The 3.35% applies to married couples that are filing jointly and have a taxable income of a maximum of $68,400 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $40,950.

The 8.75% applies to married couples that are filing jointly that have a taxable income of a maximum of $251,950 or to married individuals that are filing separately and individual filers that have a taxable income of a maximum of $206,950. 

In Vermont, your bill will require a significant sum of cash. Most retirement income is taxed in Green Mountain State because of its high top-income tax rate. If a resident’s federal adjusted gross earnings exceed a specific threshold, the state may also tax all or a portion of their Social Security payments.

At least Vermont has a moderate sales tax. The burden of this tax is minimized by the fact that the average total state and local tax rate is only 6.24% and that clothing and food for domestic usage are excluded.

#8 Iowa

The state income tax ranges from 0.33% to 8.53%. The 0.33% applies to a taxable income of a maximum of $1,743 and the 8.53% applies to a taxable income of a maximum of $78,435.

In Iowa, the average income tax rate is high. Particularly in the case of retirees with higher-than-average incomes. Furthermore, in addition to the state tax, Appanoose County and more than 200 school districts charge their own local income taxes.

Fortunately, starting in 2023, the state’s top tax rate on income will gradually decrease. From 2026 on, a flat rate of 3.9% will be in effect. Additionally, starting in 2023, all pension income for individuals 55 and older will be tax-free. Presently, up to $6,000 of pension income is exempt. 

If you enjoyed reading this article, we suggest you also check out 7 Downsides of Social Security People Aren’t Talking About.

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