Top 10 Highest Tax Burden States in 2023 | Comprehensive Tax Guide

Updated for Tax Year 2023

Where you live in the United States can significantly impact how much you pay in taxes. In this comprehensive guide, we’ll explore the highest tax burden states in 2023, understand the overall tax burden, and provide insights into how state taxes can affect your finances. Whether you’re planning to relocate, preparing for retirement, or optimizing your tax responsibilities, knowing the state tax rates is crucial for making informed financial decisions.

Understanding the Overall Tax Burden

The overall tax burden refers to the total amount of state and local taxes a person pays relative to their income. This includes:

• Income Taxes
• Sales Taxes
• Property Taxes
• Excise Taxes

The tax burden varies significantly by state due to differing tax rates and structures. Some states impose higher rates across various tax categories, while others keep them relatively low. Understanding this disparity is essential for financial planning, as it affects how much of your earnings are consumed by taxes annually.

Top 10 Highest Tax Burden States in 2023

Below is a detailed ranking of the states with the highest overall tax burdens in 2023. This table provides insight into where residents face the heaviest tax obligations relative to their income:

Source: Wisevoter

Note: The “Overall Tax Burden” represents the percentage of income that residents pay in state and local taxes, not just income tax.

Which State Has the Highest Sales Tax in 2023?

California has the highest state sales tax rate in the nation, at 7.25% (as reported by the Tax Foundation). This rate applies to a wide range of goods and services, making it a significant source of state revenue.

Top 5 States with the Highest Combined Sales Tax in 2023

While state sales tax rates are important, the combined sales tax rate—which includes both state and local sales taxes—provides a more complete picture of the sales tax burden.

Source: Tax Foundation

Note: Combined sales tax rates can vary within states due to local sales tax additions. Both Tennessee and Louisiana share the top spot with the highest combined sales tax rate of 9.55%.

States with the Highest Property Taxes

New Jersey stands out as the state with the highest property taxes, with residents facing a property tax rate of 2.47% of the property’s assessed value. Property taxes significantly influence the total cost of homeownership, impacting affordability and long-term financial planning.

The 5 States with the Highest Property Taxes in 2023

1. New Jersey – 2.47%
2. Illinois – 2.23%
3. Connecticut – 2.15%
4. New Hampshire – 2.09%
5. Vermont – 1.90%

Source: PropertyShark

Which State Has the Highest Income Tax Rate in 2023?

California holds the distinction of having the highest state income tax rates in the U.S., reaching up to 13.3% for the highest income earners. California’s progressive income tax system means that those with higher incomes pay a larger percentage of their earnings in taxes.

States with No Personal Income Tax

Several states do not impose a state income tax on residents’ earnings, providing significant tax advantages:

1. Alaska
2. Florida
3. Nevada
4. South Dakota
5. Texas
6. Washington
7. Wyoming

Note: While New Hampshire does not tax earned income, it taxes interest and dividends. As of 2021, Tennessee has fully phased out its tax on interest and dividends, making it a true no-income-tax state.

Conclusion

Understanding the highest tax burden states and how different taxes impact your earnings is essential for making informed financial decisions. Taxes fund vital public services like education, infrastructure, and safety. By being aware of these differences, you can better plan for the future—whether you’re considering relocation, retirement, or optimizing your tax responsibilities.

Frequently Asked Questions

Tax Burden and Financial Planning

1. What is the overall tax burden, and how does it vary by state?

The overall tax burden is the total state and local taxes paid relative to income, including income, sales, property, and excise taxes. It varies by state due to different tax rates and structures.

2. How can understanding state tax rates help in making financial decisions?

Knowing state tax rates aids in relocation choices, retirement planning, and tax optimization strategies, allowing individuals to maximize earnings and savings.

3. What are the implications of living in a state with no personal income tax?

While there is no income tax, these states may have higher sales or property taxes. Additionally, public services might receive less funding, potentially affecting their quality.

Specific Taxes and Their Impact

4. How do sales taxes impact everyday expenses?

Sales taxes increase the cost of goods and services. Higher sales tax states make everyday purchases more expensive, affecting the overall cost of living.

5. How do property tax rates affect homeownership costs?

Higher property taxes increase annual housing expenses, impacting affordability and the long-term cost of owning a home.

6. Which states have the highest property taxes?

New Jersey leads with a property tax rate of 2.47%, followed by Illinois, Connecticut, New Hampshire, and Vermont.

Tax Changes and Compliance

7. What changes occurred in state income tax laws for 2023?

In 2023, some states adjusted their income tax rates and brackets. Some increased rates for higher income earners, while others decreased rates to provide tax relief. Additionally, changes in tax credits and deductions were implemented to reflect economic conditions. It’s important to consult the latest state tax guidelines or a tax professional for accurate information.

8. When are state taxes typically due?

State income tax returns are generally due on April 15, aligning with the federal tax deadline, unless adjusted for weekends or holidays.

9. How can I amend my tax returns if needed?

You can amend your tax returns by filing the appropriate state amendment form, usually available on the state’s tax website. Follow specific instructions and deadlines provided by your state’s tax authority.

Business and Investment Taxes

10. How do corporate income taxes affect businesses in different states?

Corporate income taxes are levied on a company’s profits. Higher corporate taxes can deter businesses from operating in certain states, while lower taxes may attract more businesses, impacting economic growth and job creation.

11. How do capital gains taxes vary by state?

Capital gains taxes vary by state in terms of rates and exemptions. Some states tax capital gains at the same rate as regular income, while others have separate rates or exemptions, affecting investors’ after-tax profits.

Additional Resources

• California Exit Tax: Understanding the Implications for Exiting Taxpayers
• What is the Additional Medicare Tax for High Earners?
• How To Calculate Gross Income Like A Pro