Which States Have the Lowest Tax Rates?

lowest state income tax rates in us

And the remaining $7,000 is taxed at 5%, for a total of $350. Each chunk of income is taxed at progressively higher rates as the total income climbs higher up the scale.

  • Refundable credits to offset sales and property taxes are also common.
  • Six of the 10 most regressive states derive roughly half to two-thirds of their tax revenue from sales and excise taxes, compared to a national average of about one-third.
  • The same is true, to a lesser extent, of property and sales taxes; while any state that relies heavily on these taxes is likely to have a regressive tax structure, lawmakers can take steps to make these taxes less regressive.
  • Residents of New York state face the country’s highest tax burden, according to a new WalletHub study.

Results, ITEP’s Tax Inequality Index ranking, and tax code features that drive the data in each state. The state pages show state-by-state estimates of the distribution of state and local taxes by income group for non-elderly taxpayers. For each state, two pages of tax information are presented. This high-reliance on consumption taxes helps land six of these states —Florida, Nevada, South Dakota, Tennessee, Texas, and Washington — on ITEP’s Terrible 10 list of the most regressive state and local tax systems. Because the Earned Income Tax Credit is targeted to low-income families with children, it typically offers little or no benefit to older adults and workers without children. However, we have seen forward momentum on this issue in DC and Minnesota, and more recently in California and Maryland where lawmakers have taken steps to improve the credit for workers without children.

Gas Tax

When it comes to property taxes, Delaware has the sixth-lowest median property tax rate in the nation. As a result, the tax on a $300,000 home owned by our hypothetical family is estimated to be just $1,704 per year. The argument for graduated tax rates is that they’re tied to your income so those who earn more pay more.

Why Do States Charge a State Tax?

Following the adoption of the U.S. Constitution, the federal government was granted the authority to impose taxes on its citizens. Each state also retained the right to impose what kind of tax it wanted, excluding any that are forbidden by the U.S. Constitution as well as its own state constitution. These states fund their governments through tax collection, fees, and licenses.

As a result, excise taxes are usually the most regressive kind of tax. Nevada gets most of its revenue from sales taxes as well as taxes on the gambling and mining industries. All states that impose an individual income tax allow most business deductions. However, many states impose different limits on certain deductions, especially depreciation of business assets. Most states allow non-business deductions in a manner similar to federal rules.


In late August 2019, a gallon of regular unleaded gas cost $2.20 in Louisiana and $3.66 in Hawaii, and most Americans can remember times when prices were even higher. Oil companies aren’t all to blame for high gas prices, though. That’s because the federal, state and local governments levy varying degrees of fees on every gallon of gas sold, with states largely using that money to pay for road work.

  • Not levying a personal income tax requires tradeoffs that are often detrimental to tax fairness.
  • Since the Arizona Supreme Court refused to suspend the law while a lower court adjudicates details pertaining to the measure’s revenue allocation, the surtax remains in effect.
  • Unlike the federal tax rates, income tax by state varies.
  • Analysis would not give an accurate depiction of how the tax structure treats the majority of taxpayers.
  • New Hampshire’s Senate passed legislation to phase out the investment income tax by 1% per year over five years, with full implementation by 2027.

Refundable low-income credits that are available to all residents regardless of family status are also good complementary policies to state EITCs. A progressive graduated income tax is a characteristic of the least regressive state tax systems. The lower one’s income, the higher one’s overall effective state and local tax rate.

California State and Local Taxes

As a result, the state’s combined state and average local sales tax rate is the eighth-lowest in the country, according to the Tax Foundation. Then, when you add in local taxes, the average combined state and local sales tax rate shoots up us state income tax rates to 8.23%, which is the 13th-highest in the country. Sales taxes in the Peace Garden State are below average, too. However, according to the Tax Foundation, the average combined state and local sales tax rate is 6.96%, which isn’t too bad.

  • DE, HI and VT do not support part-year/nonresident individual forms.
  • Ohio’s personal and dependent exemptions are $2,400 for an AGI of $40,000 or less, $2,150 if AGI is more than $40,000 but less than or equal to $80,000, and $1,900 if AGI is greater than $80,000.
  • The following links offer summaries of Maryland tax legislation that was passed during the 2014 session of the General Assembly and signed into law by Governor Martin O’Malley.
  • That’s because your tax burden — individual income, property, sales and excise taxes as a share of total personal income — varies by state.
  • We tell you how small business owners vacation worry-free.

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