In this article, we will look at the 20 tax-friendly states for high income in the US. If you want to skip our detailed analysis, head straight to 5 Tax-Friendly States for High Income in the US.
Individual Income Taxes
Individual income taxes are a key source for state governments to generate revenue. State policies along with individuals taking responsibility for filing their income taxes are key to income tax collection for governments. According to the Tax Foundation, individual income taxes accounted for 40% of the state tax collections in fiscal 2020. As we mentioned earlier, the federal government expects to gather almost $2.33 trillion in individual income taxes in 2023, accounting for nearly 48.5% of the US government’s total federal income tax receipts. In 2023, the Internal Revenue Service (IRS) projects to record 168 million individual tax returns. The IRS has hired more workforce and taken additional measures to improve its tax collection in 2023.
The minimum individual income tax rate is 10% and the maximum income tax rate is 37% for 2023, as per the Internal Revenue Service (IRS). The tax brackets have a 7% higher upper limit in 2023 than the tax brackets in 2022. The minimum individual taxable income bracket ranges between $0 to $11,000 in 2023 compared to $0 to $10,275 in 2022.
Among US states, 43 states and the District of Columbia levy individual income taxes. While, 41 states tax wage and salary income. Seven states have zero individual income tax, while Washington only taxes capital gains income. New Hampshire exclusively taxes dividend and interest income. Out of the states that tax wages, 11 have single-rate tax structures. On the other hand, 30 states and the District of Columbia have graduated-rate income taxes, with tax brackets varying widely by state. The highest number of tax brackets in a state is 12 in Hawaii.
During fiscal 2021, per capita tax collections were the highest in the District of Columbia at $13,278. New York, Connecticut, California, New Jersey, and Massachusetts had per capita tax collections of $9,458, $9,175, $8,303, and $8,101, respectively. The state with the lowest per capita collection during fiscal 2021 was Alaska at $4,192. While other states with low per capita collection included Alabama, Tennessee, Florida, and Mississippi with per capita tax collections of $4,245, $4,272, $4,405, and $4,435, respectively.
On October 27, the Tax Foundation reported that Americans are moving from higher-tax states to lower-tax states, as per the IRS. In 2021, California lost $29 billion and New York lost $25 billion in adjusted gross income. While, Florida gained $39 billion in adjusted gross income. Less state income means less tax collection and vice versa. The decrease and increase in adjusted gross income in these states were driven by the interstate migration of US citizens.
Tax Services Providers in the US
American tax service providers serve in a wide range of capacities from accounting and payroll services to tax preparation and business consultation. Tax service providers are always key players in addressing the client’s tax situation at the right time. Some of the leading tax service providers in the US include H&R Block, Inc. (NYSE:HRB), CBIZ, Inc. (NYSE:CBZ), and Intuit Inc. (NASDAQ:INTU).
H&R Block, Inc. (NYSE:HRB) is one of the top tax service companies in the US. On November 7, H&R Block, Inc. (NYSE:HRB) announced its quarterly results for the first quarter of fiscal 2024. The company posted a revenue of $183.80 million, beating consensus estimates by $1.74 million. H&R Block, Inc. (NYSE:HRB) has soared 52.93% over the last six months, as of November 30. H&R Block, Inc. (NYSE:HRB) has returned over $3.5 billion to shareholders in the form of share repurchases and dividends since 2016. Here are some of the comments from the Q1 2024 earnings call:
“We are early in the year and Q1 is a relatively small portion of our results, we had a good start and are reaffirming our fiscal ’24 outlook. We were pleased given that we lapped a very strong extended season last year and our share in both DIY and Assisted slightly improved throughout the year. With favorability in NAC, we grew revenue, continued to manage our expenses well, and demonstrated ongoing progress on our Block Horizons strategy.
We see a long runway of opportunity and are focused on continuing our momentum, which includes growing clients in both tax and services and driving business formations, which we launched last year. Overall, we feel good about the trajectory of small business. Turning to Wave. Revenue growth was 6% in Q1, which was in line with our expectations. As we’ve shared, we underwent a strategic review of the business when the new leader was put in place.”
CBIZ, Inc. (NYSE:CBZ) is a leading tax, accounting, and advisory services provider. On November 8, CBIZ, Inc. (NYSE:CBZ) announced the appointment of Jaileah Huddleston as the company’s new Chief Legal Officer and Corporate Secretary. Huddleston will replace CBIZ, Inc.’s (NYSE:CBZ) long-time General Counsel and Secretary Mike Gleespen and take her position with effect from December 11. On October 12, CBIZ, Inc. (NYSE:CBZ) reported its earnings for the third quarter of 2023. The company posted earnings per share of $0.66, beating estimates by $0.07. The company’s revenue came in at $410.54 million, surpassing market consensus by $15.01 million.
Intuit Inc. (NASDAQ:INTU) owns some of the biggest tax management software including TurboTax and Quickbooks, among others. On November 14, Intuit Inc. (NASDAQ:INTU) announced new innovative features for QuicksBooks that would help the accounting community and small business customers. The company has expanded roles and permissions, added charts of account templates, and improved client experience for QuickBooks users. On November 28, Intuit Inc. (NASDAQ:INTU) reported its earnings for the first quarter of fiscal 2024. The company posted earnings per share of $2.47, beating estimates by $0.49. The revenue was reported at $2.98 billion, outperforming estimates by $94.53 million.
Let’s now take a look at tax-friendly states for high income in the US.
20 Tax-Friendly States for High Income in the US
Our Methodology
We have gathered data for the states with zero or minimum income tax from the Tax Foundation. Our ranking is based on the states with minimum individual income tax. For the states with similar individual income tax, we have used the per capita income of the state as a tie-breaker. The state with a higher per capita income is ranked higher. For the per capita income of states, we sourced data from the US Census Bureau.
20 Tax-Friendly States for High Income in the US
20. Utah
Individual Income Tax Rate: 4.85%
Per Capita Income: $33,378
Utah is one of the states with the lowest individual income tax rates. The US state has a flat income tax rate of 4.85%. With a per capita income of $33,378, Utah ranks 20th on our list of tax-friendly states for high income in the US.
19. Oklahoma
Individual Income Tax Rate: 4.75%
Per Capita Income: $30,976
Oklahoma is one of the states with the lowest individual income tax rates ranging from 0.25% to 4.75%. Oklahoma has a per capita income of $30,976 and ranks among the tax-friendly states for high income in the US.
18. Kentucky
Individual Income Tax Rate: 4.50%
Per Capita Income: $30,634
Kentucky has a flat income tax rate of 4.50%. With a per capita income of $30,634, Kentucky makes it to our list of tax-friendly states for high income in the US.
17. Colorado
Individual Income Tax Rate: 4.40%
Per Capita Income: $42,807
Colorado is one of the states with the lowest individual income tax rates. The US state has a flat income tax rate of 4.40%. With a per capita income of $42,807, Utah ranks 17th on our list of tax-friendly states for high income in the US.
16. Louisiana
Individual Income Tax Rate: 4.25%
Per Capita Income: $30,340
Louisiana is one of the states with the lowest individual income tax rates ranging from 1.85% to 4.25%. Louisiana has a per capita income of $30,340 and ranks among the tax-friendly states for high income in the US.
15. Michigan
Individual Income Tax Rate: 4.25%
Per Capita Income: $34,768
Michigan has a similar individual income tax rate as Louisiana. But, Michigan’s individual income tax rate is flat at 4.25%. Michigan’s per capita income of $34,768 makes it rank among the tax-friendly states for high income in the US.
14. New Hampshire
Individual Income Tax Rate: 4%
Per Capita Income: $43,877
New Hampshire has a flat income tax rate of 4%. With a per capita income of $43,877, New Hampshire makes it to our list of tax-friendly states for high income in the US.
13. Ohio
Individual Income Tax Rate: 3.99%
Per Capita Income: $34,526
Ohio has a graduated individual income tax ranging from 2.76% to 3.99%. The US state has a per capita income of $34,526. Ohio makes it to our list of tax-friendly states for high income in the US.
12. Indiana
Individual Income Tax Rate: 3.23%
Per Capita Income: $32,537
Indiana is one of the states with the lowest individual income tax rates, having a flat tax rate of 3.23%. Indiana has a per capita income of $32,537 and ranks among the tax-friendly states for high income in the US.
11. Pennsylvania
Individual Income Tax Rate: 3.07%
Per Capita Income: $37,725
Pennsylvania has a flat income tax rate of 3.07%. With a per capita income of $37,725, Pennsylvania ranks 11th on our list of tax-friendly states for high income in the US.
10. North Dakota
Individual Income Tax Rate: 2.90%
Per Capita Income: $37,343
North Dakota is one of the states with the lowest individual income tax rates ranging from 1.10% to 2.90%. North Dakota has a per capita income of $37,343 and ranks among the tax-friendly states for high income in the US.
9. Arizona
Individual Income Tax Rate: 2.50%
Per Capita Income: $34,644
Arizona has a flat income tax rate of 2.50%. With a per capita income of $34,644, Arizona ranks among the tax-friendly states for high income in the US.
8. Tennessee
Individual Income Tax Rate: 0%
Per Capita Income: $32,908
Tennessee does not have an individual income tax. The US state has a per capita income of $32,908 and ranks eighth on our list of tax-friendly states for high income in the US.
7. South Dakota
Individual Income Tax Rate: 0%
Per Capita Income: $33,468
South Dakota does not have individual income tax and has a per capita income of $33,468. Ranked seventh on our list, South Dakota is one of the tax-friendly states for high income in the US.
6. Texas
Individual Income Tax Rate: 0%
Per Capita Income: $34,255
Texas does not have an individual income tax. The US state has a per capita income of $34,225 and ranks among the tax-friendly states for high income in the US.
Click here to see 5 Tax-Friendly States for High Income in the US.
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Disclosure: None. 20 Tax-Friendly States for High Income in the US is originally published on Insider Monkey.