The Best (and Worst) States for Income Tax

For most people, getting their first paycheck is a watershed moment. It represents your first foray into adulthood, even if you’re still a teenager. And most of the time, there’s a sense of disappointment when you finally see your paycheck and realize how much of it has been taken out.

For most workers, a portion of their paycheck goes toward federal income tax, as well as their state’s income tax. This is used to fund infrastructure, education and other projects. And while everyone pays federal tax, income tax rates are set by each individual state. 

That means every state has its own specific policy — with eight states not charging any income tax at all.

No one likes paying income tax, but residents of some states have it worse than others. Here are some of the worst offenders when it comes to high income tax:

New Jersey may be known as the Garden State, but it could also be infamous for its income tax rates. New Jersey has a 10.75% income tax rate. However, this rate only applies to the top earners. Also, there’s a 9% maximum state corporate income tax rate. In fact, New Jersey ranks 49th out of all states when it comes to their tax system.

The Empire State has a high income tax rate — 10.9%. Fortunately, it only applies for those truly earning a good living, individuals with an AGI of more than $1,077,550 and couples with an AGI of more than $2,155,350. Plus, there’s a corporate income tax rate with a max of 7.25%. Also, residents still have to pay a high sales tax rate — 8.53% on average.

The Golden State is known for its beaches, Hollywood, Silicon Valley and more. And it’s also famous for being expensive to live in. California’s income tax is partly to blame, with a top rate of 12.3%, along with an extra 1% surcharge for those in the highest income bracket. What’s worse is that California also charges a significant sales tax of 7.25%.

There’s a price to pay for living in paradise. And when you live in the Aloha State, you’ll have to fork over a significant amount of money. Hawaii has a 11% tax rate for individuals with an AGI of more than $200,000 and couples with an AGI of more than $400,000. It also has a state and local tax burden of 14.1%. That ranks 48th out of all 50 states. On top of that, Hawaii also charges a 4.00% sales tax.

When you think about the most expensive places to live, Oregon usually isn't one of them. However, it does have one of the highest income tax rates in the country. Residents of the Beaver State will have to pay up to 9.9%. That doesn’t include some localities that charge their own local income tax.

The following states don’t charge any income tax. However, states still need to raise money so many of them charge a high sales tax to make up for the lost revenue.

By far the best state when it comes to taxes, New Hampshire doesn’t charge its residents an income tax or sales tax. That’s right — residents only have to worry about property tax in the Granite State (although they do have some of the highest property tax rates in the country).

Alaska is by far the best state for all types of personal taxes. There is no income tax and there’s also no state-based sales tax (unlike other states). Local sales tax still exists. However, the average rate is 1.76% — still better than what you’d find in most other states.

The Sunshine State is one of the most popular places to live in the country — and its no income tax policy may be one of the top reasons. However, there is a 7.02% sales tax in Florida, which is fairly high compared to the rest of the country.

Living in the Silver State can be fun, whether you love the great outdoors or its nightlife. But no matter who you are, you can enjoy no income tax in Nevada. The downside is that you’ll pay a sales tax of 8.24%. However, there’s more good news: property tax rates are also fairly low at 0.59%.

The state famous for Mount Rushmore is also proud to be part of the cohort of states with no income tax. However, it does have a decent sales tax, with an average combined rate of 6.11%. While that’s higher than the national average, it’s better than many other states that refrain from charging an income tax.

While Tennessee does not have an income tax, it does have a high sales tax. The state rate is 7%, while the local rate differs depending on the city. The average combined rate for state and local sales tax is 9.55%. That’s one of the highest combined rates in the country.

The Lone Star State may be one of the most popular options for workers trying to avoid income tax. There’s no income tax in Texas, but residents will have to pony up when it comes to sales tax. Texas charges a state-wide 8.20% sales tax, which is fairly high. The state is also known for high property tax rates.

The Evergreen State gets its nickname from its lush forests — but it might also be an inside joke for all the money its residents save by not paying income tax. Plus, there’s no corporate income tax. However, Washington residents will still have to pay a 6.5% sales tax. That’s not terrible, but not as low as some other states.

Wyoming is another state that has low taxes, on top of its beautiful views. There’s no income tax in the Cowboy State and the sales tax is only 5.44%. That’s a huge shift from other no-income-tax states that make up the revenue difference by charging a high sales tax. But one thing that makes Wyoming stand out is that they also don't charge a corporate income tax.

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