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Best States for Low Taxes: 50 States Ranked for Taxes, 2018


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2018 is the first year of the new tax law, the Tax Cuts and Jobs Act. It will reduce federal taxes for millions of taxpayers, with the average family saving more than $1,000 in 2018. But state taxes are another story -- 50 stories, in fact.

All states tie their tax structure to federal law, borrowing definitions of income, deductions, and exemptions -- but to varying degrees. And even though the federal overhaul lowered tax rates, increased the child tax credit and doubled the standard deduction, it expanded the amount of income that's taxable, mainly by eliminating personal exemptions. At the state level, that could lead to taxing a larger percentage of residents' income, without the offsetting lower rates and expanded tax credits.

To compensate, several states moved to preserve personal exemptions. Others lowered tax rates or made other changes. But lawmakers in some states are either still debating how to adjust their tax codes -- or just punted.

Making matters worse: The tax overhaul capped the federal tax deduction for state and local taxes at $10,000. In states with high property taxes, the cap will effectively increase homeowners' tax rates.

Where does your state fit in? We've ranked them all.

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Alabama

Our ranking: Tax-friendly

State income tax: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others) -- 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others)

Average state and local sales taxes: 9.15%

Gas taxes and fees: 21 cents per gallon

Go to Alabama's full state tax profile

It doesn't take much income to find yourself in Alabama's highest tax bracket, though the Yellowhammer State does allow you to deduct your federal income taxes (it's one of just of a handful of states with this break). Some counties and cities charge an "municipal occupational tax" of 0.5%-2% on income; the average levy across the state is 0.5%, according to the Tax Foundation.

Property taxes are the second-lowest in the country, but sales taxes take a bite -- and the full rate is levied on food.

SEE ALSO: The Most Tax-Friendly States in the U.S. 2018



Alaska

Our ranking: Most tax-friendly

State income tax: None

Average state and local sales taxes: 1.43%

Gas taxes and fees: 15 cents per gallon

Go to Alaska's full state tax profile

Alaska gives each legal resident who has lived in the state for a full year an annual "Permanent Fund Dividend." But the dividend has been shrinking in recent years, reflecting lower oil prices and a drop in production. This year, each legal resident will receive $1,600, down from a peak of $2,072 in 2015.

Gas taxes in the Last Frontier are the lowest in the U.S., and Alaskans pay no state income taxes or state sales taxes. While municipalities - generally those without real estate taxes - impose local sales taxes as high as 7.5%, the average sales tax is 1.43%, according to the Tax Foundation. Anchorage, Alaska's largest city, has no sales tax. The property tax on the state's median home value of $257,100 is $3,048. That's slightly above the average for the U.S.

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Arizona

Our ranking: Most tax-friendly

State income tax: 2.59% (on taxable income of less than $10,346 for single filers or $20,690 for joint filers) -- 4.54% (on taxable income of more than $155,159/single or $310,317/joint) Income levels are for the 2017 tax year.

Average state and local sales taxes: 8.33%

Gas taxes and fees: 19 cents per gallon

Go to Arizona's full state tax profile

Arizona's top income tax rate of 4.54% doesn't kick in until taxable income exceeds $155,159 for single filers or $310,317 for married couples filing jointly.

The property tax on the state's median home value of $176,900 is $1,367, below average for the U.S. And at 19 cents per gallon, state gas taxes are well below the national average of 34 cents per gallon.

Like most states, the Grand Canyon State excludes prescription drugs and food for home consumption from state sales taxes. However, all 15 counties levy additional taxes, as do many municipalities, and some jurisdictions extend their taxes to groceries.

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Arkansas

Our ranking: Mixed tax picture

State income tax: 0.9% (on up to $4,299 of taxable income) -- 6.9% (on more than $35,099 of taxable income, if your total income exceeds $75,000)

Average state and local sales taxes: 9.42%

Gas taxes and fees: 22 cents per gallon

Go to Arkansas' full state tax profile

Property taxes are low in the Natural State, but sales taxes are the third highest in the country -- even groceries are taxed (albeit at a lower rate). Income tax is particularly complicated in Arkansas, as the state uses multiple rate schedules that give it 16 different tax brackets in practice. Notably, service pay for active-duty members of the armed forces is completely exempt from income tax.

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California

Our ranking: Least tax-friendly

State income tax: 1% (on income less than $8,544/individual, $17,088/joint) -- 13.3% (on income more than $1 million/individual, $1,145,960/joint)

Average state and local sales taxes: 8.55%

Gas taxes and fees: 56 cents per gallon

Go to California's full state tax profile

Some California residents will see their income taxed at the country's highest rate, 13.3%, which hits taxable income over $1 million for singles and $1,145,960 for married joint filers. For more modest incomes, the tax bite isn't quite as harsh

The Golden State also has the highest statewide sales tax, at 7.25%. The average state and local combined rate is 8.55%, according to the Tax Foundation; in some cities, the combined rate is over 10%.

Californians have lower property rates than residents of other high-tax states, but in a state with some of the highest real estate prices in the U.S., bills are still pricey. The property tax on the state's median home value of $409,300 is $3,237. In the Bay Area and other parts of the state where an average home costs upwards of $1 million, the $10,000 cap on state and local tax deductions will effectively increase the cost of property taxes.

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Colorado

Our ranking: Tax-friendly

State income tax: Flat 4.63%

Average state and local sales taxes: 7.52%

Gas taxes and fees: 22 cents per gallon

Go to Colorado's full state tax profile

The Centennial State has a flat tax: If you have federal taxable income, the rate is 4.63%. Property taxes are quite low, but sales taxes take a bite. Colorado has a legal cannabis market; the taxes on marijuana include a 15% excise tax, a 15% "retail marijuana sales tax," plus regular state and local sales taxes.

SEE ALSO: 10 Strangest Ways States Tax You (And Don't)



Connecticut

Our ranking: Least tax-friendly

State income tax: 3% (on up to $20,000 of taxable income for married joint filers and up to $10,000 for those filing individually) -- 6.99% (on the amount over $1 million for married joint filers and over $500,000 for those filing individually)

Average state and local sales taxes: 7.52%

Gas taxes and fees: 44 cents per gallon

Go to Connecticut's full state tax profile

About the only bright spot in Connecticut's tax picture is that localities can't add to The Constitution State's 6.35% sales tax. Real estate taxes are the fourth-highest in the country and the state has not only a gift tax, but a luxury tax. Plus, annual car taxes are steep.

The Nutmeg State is one of Kiplinger's top ten least tax-friendly states . The $10,000 cap on the federal tax deduction for state and local taxes will sting residents in high-income areas, such as Fairfield County, who pay more than $10,000 in property taxes -- their federal tax deductions for state and local taxes will be curtailed.

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Delaware

Our ranking: Most tax-friendly

State income tax: 2.2% (on taxable income from $2,001 to $5,000) -- 6.6% (on taxable income above $60,000)

Average state and local sales taxes: 7.52%

Gas taxes and fees: 23 cents per gallon

Go to Delaware's full state tax profile

The First State is a standout among its East Coast neighbors, with no sales tax and and low property taxes. Income taxes escalate quickly, though, with the top rate of 6.6% hitting taxable income over $60,000 (for both single and joint filers), and the capital city of Wilmington imposing its own wage tax. Delaware is one of Kiplinger's top ten most tax-friendly states .

Little Delaware pulls off this low-tax trick by being a very friendly place for businesses to incorporate, and then collecting fees and taxes from these absentee businesses, whose real operations are elsewhere.

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Florida

Our ranking: Most tax-friendly

State income tax: None

Average state and local sales taxes: 6.80%

Gas taxes and fees: 41 cents per gallon

Go to Florida's full state tax profile

The Sunshine State is well known for its absence of a state income, and its property taxes are below the midpoint for the U.S. Sales taxes are on the high side, but Florida makes it into Kiplinger's top ten most tax-friendly states .

Notably, Florida is one of only two states to exempt cigars from all taxation, a reflection of its long history as a cigar-manufacturing location.

SEE ALSO: 8 Things You Must Know About Retiring to Florida



Georgia

Our ranking: Mixed tax picture

State income tax: 1% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately) -- 6% (on taxable income over $10,000 for married couples filing jointly; on taxable income over $7,000 for individual filers; and on taxable income over $5,000 for married couples filing separately)

Average state and local sales taxes: 7.23% (groceries taxable by localities)

Gas taxes and fees: 31 cents per gallon

Go to Georgia's full state tax profile

Georgia's tax brackets mean that many taxpayers will find themselves paying the top marginal rate, which kicks in at just $10,000 of taxable income for married couples filing jointly or $7,000 for individual filers. However, in 2019, the rate will drop from 6% to 5.75%, and then to 5.5% in 2020. The second step to 5.5% would require a joint resolution by Georgia lawmakers and the governor during the 2020 legislative session.

The Peach State's sales taxes lean high, and in some areas, groceries are taxed as well. Property taxes are modest.

SEE ALSO: Some Self-Employed Taxpayers Get a Big Break Under New Law



Hawaii

Our ranking: Least tax-friendly

State income tax: 1.4% (on taxable income up to $4,800 for married couples filing jointly; on up to $2,400 for married couples filing separately and individual filers) -- 8.25% (on taxable income over $48,000 for married couples filing jointly and surviving spouses; on over $96,000 for married couples filing separately and individual filers)

Average state and local sales taxes: 4.35% (but applied to virtually all transactions)

Gas taxes and fees: 48 cents per gallon (varies by county)

Go to Hawaii's full state tax profile

The Aloha State, one of Kiplinger's top ten least tax-friendly states , is known for its high cost of living -- and high taxes. The top tax bracket is an eye-popping 11% (applied to taxable income over $400,000). Also, don't be fooled by Hawaii's 4.35% average sales tax rate. Since it's due on virtually all transactions, the pocketbook effect is severe.

A ray of sunshine: Property taxes as a percentage of home value are the lowest in the U.S.

SEE ALSO: 50 Best Places to Retire in the U.S.



Idaho

Our ranking: Mixed tax picture

State income tax: 1.125% (on taxable income up to $3,008 for married joint filers and up to $1,504 for individual filers) -- 6.925% (on taxable income of $22,558 or more for married joint filers and $11,279 or more for individual filers)

Average state and local sales taxes: 6.03% (groceries are taxed)

Gas taxes and fees: 33 cents per gallon

Go to Idaho's full state profile

Idaho took steps to head off an effective state tax increase from the new federal tax law. Among the steps: Increasing the state standard deduction, introducing a a new $130 per child tax credit, and lowering tax rates a hair. Even so, Idaho's top tax rate of 6.925% kicks in at a fairly low bracket ($22,558 for married joint filers), making its income-tax hit feel more like that of a a coastal state.

On the other hand, property taxes are low, sales tax modest and the Gem State does not have an inheritance tax or estate tax.

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Illinois

Our ranking: Least tax-friendly

State income tax: Flat 4.95%

Average state and local sales taxes: 8.70% (groceries are taxed)

Gas taxes and fees: 38 cents per gallon (varies by county)

Go to Illinois' full state tax profile

Illinois has been struggling with budget deficits for a while, and in July 2017 raised its flat tax on income from 3.75% to 4.95%. And the bad news doesn't stop there. Property taxes in Illinois are the second-highest in the nation and state and local sales taxes are steep in the Prairie State, one of Kiplinger's top ten least tax-friendly states . In some areas, the combined rate can be as high as 10% -- among the highest sales tax rates in the U.S. Even prescription drugs are taxed, albeit only at 1%.

Smokers also note: Cook County adds an extra $3.00 to the state's $1.98 cigarette tax, and Chicago (which is in Cook County) another $1.18 to that. The result: A pack purchased in Chicago has the highest total tax in the country at $6.16.

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Indiana

Our ranking: Tax-friendly

State income tax: Flat 3.23%

Average state and local sales taxes: 7%

Gas taxes and fees: 43 cents per gallon

Go to Indiana's full state tax profile

The Hoosier State dropped its flat income tax a smidge in 2017, from 3.3% to 3.23%, but many counties in Indiana also impose their own income taxes, with an average levy of 1.56%, according to the Tax Foundation. The state sales tax is high, though municipalities don't get to add to it.

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Iowa

Our ranking: Mixed tax picture

State income tax: 0.36% (on up to $1,598 of taxable income) -- 8.98% (on taxable income over $71,910)

Average state and local sales taxes: 6.82%

Gas taxes and fees: 31 cents per gallon

Go to Iowa's full state tax profile

In the wake of the new federal tax law, Iowa has done a bit of tax reform of its own. For 2019, the changes are relatively modest:

  • An across-the-board rate reduction that reduces the top rate from 8.98% to 8.53%
  • A "decoupling" from federal law that means Iowans won't be limited in how much local property taxes can be deducted from state returns.


In 2023, assuming state revenues hold up, income taxes will be further reduced, the alternative minimum tax repealed, and the Hawkeye State's uncommon practice of allowing residents to deduct federal taxes from their state taxes will be repealed. Iowa allows school districts to tax income as well. The average levy statewide is 0.22%, according to the Tax Foundation.

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Kansas

Our ranking: Not tax-friendly

State income tax: 3.1% (on $2,500 or less of taxable income for single filers and $5,000 or less for joint filers) -- 5.7% (on more than $30,000 of taxable income for single filers and more than $60,000 for joint filers)

Average state and local sales taxes: 8.68%

Gas taxes and fees: 24 cents per gallon

Go to Kansas' full state tax profile

Kansas has seen a lot of tax drama in the past decade as it implemented, then ultimately rejected, a series of tax cuts promoted by then-Governor Sam Brownback. Individual income taxes rates went up in 2017, as well as business taxes. For 2018, the legislature debated how to respond to federal tax reform, but ultimately made no changes. As a result, Kansans who opt for the standard deduction on their federal return will have to do the same on their state return; for some, this will mean higher taxes.

Sales taxes are high (and are applied to groceries), and property taxes lean high as well.

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Kentucky

Our ranking: Mixed tax picture

State income tax: Flat 5%

Average state and local sales taxes:

Gas taxes and fees: 26 cents per gallon

Go to Kentucky's full state tax profile

Kentucky changed its tax structure substantially in 2018, moving to a 5% flat tax (to which localities can add, an average of 2.08%, according to the Tax Foundation). Deductions for health insurance premiums, long-term care insurance coverage, and medical expenses were eliminated. More items are now subject to the state's 6% sales tax, too, including club fees, pet care services, and landscaping services.

However, the Bluegrass State still prevents localities from adding to that sales tax, and the property tax burden is light.

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Louisiana

Our ranking: Most tax-friendly

State income tax: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers) -- 6% (on more than $50,000 of taxable income; $100,000 for joint filers)

Average state and local sales taxes: 9.45%

Gas taxes and fees: 20 cents per gallon

Go to Louisiana's full state tax profile

The Pelican State is homeowner-friendly, with property taxes among the lowest in the country, helping make it one of Kiplinger's top ten most tax-friendly states . The average tax bill is under $1,000, in fact. But, sales taxes are high -- the second-highest in the country, in fact.

Also: Louisiana is one of a handful of states that allow residents to deduct their federal income taxes. As a result of the new tax law, most taxpayers are expected to see their federal taxes decline, which means that deduction won't be worth as much, raising their state tax bill.

SEE ALSO: 7 Ways to Retire Without a Mortgage

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Taxes



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