On this list, you don’t want to be number one.
If you are a high-income earner, you may pay more taxes than average-income earners. For instance, the more expensive your home is, the higher property tax you may pay. The same goes for shopping. High-income earners are likely to spend more, which means they pay more in sales and excise taxes. Estates above a certain exemption level are taxed, which may only apply to the wealthiest individuals.
Given all the different types of taxes, you could pay a little less depending on where you choose to live.
Using the Tax Foundation's state income tax bracket data, we identified the top 10 most expensive states for the wealthy. This is based on the combined state and average local sales tax, the top income tax rate, the average property tax rate, and the estate tax rate in each of these states. It also includes the overall tax burden of these states, according to WalletHub’s 2022 tax burden report.
Maine has a top individual income tax rate of 7.15%, a combined state and local sales tax of 5.50%, and a property tax of 1.20%. It levies a maximum 12% tax on estates worth more than $6.01 million. While the state and local taxes appear to be below the national average, residents will pay a little more in top individual taxes and property taxes. Maine has a high total tax burden of 11.42%.
The midwestern state has a high income tax rate of 7.65% and property tax rate of 1.53%. The total state and average local sales tax are favorable, being lower than the national average at 5.43%. It has a manageable total tax burden of 8.92%. Residents are also not subject to an estate, inheritance, or gift tax.
The state's individual income tax rate is 8.53%, and the average property tax rate is 1.43%. The combined state and local sales tax rate equals 6.94%. Iowa's sales and property taxes are higher than the national average. It imposes a total tax burden of 9.34% and is one of six states that charge inheritance taxes with a top rate of 12%.
Vermont is consistent: It has high taxes across all categories, with an income tax rate of 8.75% and property taxes of 1.76%. The combined state and average local sales tax sits at 6.24% with an overall tax burden of 11.13%. It imposes a flat estate tax rate of 16% for estates worth more than $5 million. This means that once the $5 million exemption is applied and you have a taxable estate of, say, $2 million, the 16% tax rate kicks in, which isn't cost-effective for high-income taxpayers.
At 9.85%, the top individual income tax rate is among the highest in the country. The state and average local sales tax is at 7.46% and the average property tax at 1.05%. Both are slightly higher than the national average. It has a total tax burden of 10.20% and imposes a high estate top rate of 16%.
In the Beaver State, the individual income tax rate hits 9.90%. On the plus side, residents benefit from a no sales tax and a property tax rate of 0.91%. A 10-16% tax rate is imposed on estates valued at more than $1 million, making it the state with the lowest exemption threshold. Consequently, even at the lowest marginal rate of 10%, more estates are subject to high estate taxes. Its overall tax burden is 8.65%.
4. New Jersey
The Garden State is the fourth state with a double-digit income tax rate of 10.75%. It also has the highest average property tax rate in the nation of 2.13%, compared with the national average of 1.07%. It ranks number eight with a sales tax of 6.60%. It has no estate tax but applies an inheritance tax of 11% on the first $1,075,000 above the exemption amount. Its overall tax burden amounts to 10.11%.
3. New York
Property and sales taxes in New York are higher than the national average. While the individual income tax rate can be as high as 10.90%, the average property tax is 1.30%. Residents pay a combined 8.52% state and local sales tax, with the local tax accounting for a sizable portion. At 12.75%, New York City has the highest overall tax burden. On estates worth more than $10 million, the inheritance tax rate rises to a maximum of 16%.
Hawaii is second among the states that pay the most income tax with a rate of 11%. Its estate tax is also one of the highest maximum rates, at 20% on estates of $10 million and above with a $5.49 million exclusion. The Aloha State has relatively low sales and property tax rates, at 4.44% and 0.31%, respectively. But when we add up sales and excise tax burden, Hawaii has the highest at 6.36%. It has a double-digit overall tax burden of 12.70%.
California takes the cake for having the highest taxes in the nation with a top income tax rate of 13.30% due to a 1% surtax on all income over $1 million. Its combined state and local sales taxes average 8.68%, one of the highest in the country. Its average property tax rate of 0.70% lessens the burden a bit and there is no estate or inheritance tax. Its total tax burden is 9.72%.
Unlike the federal tax code, state and local tax rules differ greatly by region. In some states, a low rate in one category is offset by a high rate in another, as in the case of Oregon. In some other states, you may encounter uniformly high tax rates, as in the case of Vermont.
It’s important to understand the tax situation in different states to help you find ways to save if you ever consider relocating. Consider speaking with a financial advisor to get the tax planning help you need.