June 17, 2022
Lots of people wish they could pay less in taxes. Whether you’re thinking about making a move or you’re just curious, you can check out Credit Karma’s 2022 study on the states with the lowest taxes.
Credit Karma compiled a variety of publicly available datasets and created a weighted formula to determine which states overall had the lowest taxes. Factors included local sales tax, effective property tax rates and income taxes. (Click here for the full methodology.)
The five states with the overall lowest taxes are (No. 1 is lowest):
And the five states with the overall highest taxes are (No. 1 is highest):
Read on for more details and context. Note: While the list for overall lowest and highest taxes are weighted, ranked lists, the individual factors themselves were not weighted within the variable. The other tax rankings are components that were considered in determining the overall tax rankings. Those lists were not calculated using a weighted formula.
In Credit Karma’s study, a lower score equals a lower overall tax rate. Check out the overall rankings of state taxes and some of the contributing factors below:
|Rank||State||Income tax rates ranking||State sales tax ranking||Average effective property tax ranking|
States in New England and California had some of the highest overall tax rates. The states with the lowest taxes were scattered across the country without any apparent common characteristics.
Alaska had the lowest taxes overall, mostly because of its nonexistent income and state sales tax. However, the state fell in the middle of the pack in terms of the average effective property tax rate (the average percentage of a property’s value that the owner pays annually in taxes). New Jersey had the dubious honor of having the highest taxes overall because of its high average effective property tax rate and higher personal income tax rates.
Eight states had no income tax at all in 2022:
New Hampshire has a 5% tax on dividend and interest income, but not on labor income. Dividend and interest income can come from things like owning stock or having bank accounts that pay interest on deposits. It likely isn’t as common for people as income earned from a job (e.g., wages, tips, bonuses, etc.), but it’s still something to keep in mind.
The states with the highest personal income tax rates were:
|State||Top income tax rate||Top tax bracket – single||Top tax bracket – joint|
All the states in the above table operate on a marginal basis, which means portions of your earnings are taxed at different rates. For example, pretend you live in the great state of Imagination and make $60,000. In Imagination, the tax table looks like this:
You pay 10% on the first $10,000 you make. Then 15% on any earnings you make between $10,001 and $50,000, and 20% on anything beyond that.
So how much do you actually pay in taxes (excluding one-times taxes or fees) in a marginal tax system? Here’s how you estimate it:
First, break out how much money you make in each category and then multiply the amount by the tax rate in decimal form. So in our above example, the taxes owed on a marginal basis would look like this:
(0.10 x $10,000) + (0.15 x $40,000) + (0.20 x $10,000) = $9,000
If your entire income were to be solely taxed at the highest rate, then someone making $60,000 in Imagination would owe $12,000 in taxes — $3,000 more than they would using the marginal system.
Because of the marginal tax rates, it’s important to know the tax brackets along with the income tax rates. Although California has the highest possible income tax rate, Oregon’s top tax rate kicks in at a much lower income level compared to California’s. That means a person could potentially end up paying less state income tax in California.
For example, single filers in California making between $61,214 and $312,686 cap out at an income tax rate of 9.3%. Meanwhile in Oregon, single filers making above $9,200 have an income tax rate of 9.9%.
One thing to note: Income can be taxed at both the federal and state level. Even if a state doesn’t have a personal income tax, an individual may still owe money on their income to the federal government.
There are five states with no statewide sales tax. They are:
Sales taxes can be levied on the state and local level. For this study, we only used state-level sales taxes from the Tax Policy Center.
The states with the highest statewide sales taxes were:
Property taxes are determined at a local level, not the state level, so different communities in a state can have different property tax costs. To get the bigger, statewide picture of each state’s property tax costs, we looked at its “average effective property tax rate” — which is based on the average cost of owner-occupied residential property taxes paid across all communities.
Credit Karma found this data in the U.S. Census Bureau’s 2020 American Community Survey.
Note that there’s a tie for third and fifth place for states with the lowest average effective property tax rates.
|Rank||State||Avg. effective property tax rate|
Hawaii is the real surprise on this list because it typically ranks as a pretty expensive state, especially in terms of the cost of property. In our study on the cheapest states to live in, Hawaii came in as the most expensive state for average Zillow home value, average rent and cost of living.
The state with the highest average effective property rate is New Jersey at 2.47%, followed by Illinois at 2.24% and Connecticut at 2.13%.
The map that follows shows the average effective property tax rate for each state, along with its rank. There’s a little cluster of higher average effective property tax rates in New England. Texas and Nebraska also make the list of top 10 most expensive states in terms of average property tax rates.
To determine which states have the lowest taxes, this study analyzed all 50 U.S. states using the follow criteria:
All states were given a score for these categories and then ranked by tax type (such as, states with the lowest property taxes or with the lowest income taxes) and by overall ranking.
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