We recently compiled a report on the 20 US States Where People Will Pay The Most Taxes in 2024 and in this article we will US State Where People Will Pay The Most Taxes in 2024.
Taxes in the US
States make a big difference when it comes to taxes in the US. Some states have no income tax, sales tax, or property tax. Then some states charge flat income taxes and some of them have graduated income taxes. The least taxed states in the US mainly have no income taxes and some of the states have no sales tax. The state taxes are imposed on top of the federal income taxes in the US, which range from 10% to 37%. According to the International Tax Competitiveness ranking of 2023, the United States ranks 21st among the 38 OECD countries. The US has an overall tax competitiveness score of 65 out of 100.
Among the three major taxes including the income tax, sales tax, and property tax, income taxes are the major source of revenue for governments. Revenue from all the taxes is mainly allocated toward social insurance programs including unemployment insurance, government pension programs, and health insurance. In 2024 so far, the federal government has gathered a total revenue of $3.75 trillion, out of which 50% has been contributed by income tax. Social Security and Medicare taxes are the second largest source of revenue for the US federal government and they have added 35% to the total revenue of $3.75 trillion in 2024, as of July 31.
Around 29 states have a lower property tax compared to an average property tax of 1.04%. The average individual income tax is 5% and 26 states have income taxes equal to or less than 5%. Around 22 states have a lower corporate income tax rate than the average state corporate income tax rate of 5.85%. The average state sales tax is 5% and 20 states have sales tax equal to or less than 5%. According to the Tax Foundation, retail sales taxes are the key to most states’ revenue and are responsible for 32% of state tax collections and 13% of local tax collections. 42 states impose state-level sales taxes, while consumers also face local sales taxes in 38 states, including Alaska. Although Alaska does not have a state sales tax, it has a local sales tax of around 1.76%.
Earlier in 2024, almost 34 states went through tax changes with the majority of states going through income tax cuts. According to the OECD’s Annual Revenue Statistics for 2023, the US increased its tax-to-GDP ratio by 1.2 percentage points in 2022, up from 26.5% in 2021 to 27.7% in 2022. The tax-to-GDP ratio of the US was lower compared to the OECD average tax-to-GDP of 34% in 2022.
A Top Tax Service Company in the US
H&R Block, Inc. (NYSE:HRB) is one of the top tax services firms across the US, capturing a decent mid-level market. The company assists individuals and firms with income tax return preparation. In 2023, H&R Block assisted over 20 million clients to file their taxes, with half of them in person across its 10,000 offices. In the US alone, the company prepares around 12 million tax returns each year, and half of them are filed online. The company offers a wide series of tax service programs from basic to premium and business. The basic tax service is available with a program starting at as low as $35 and the premium and business option is available at $99.
H&R Block, Inc. (NYSE:HRB) posted its Q3 2024 earnings on May 8 and surpassed both EPS and revenue estimates. HRB’s earnings of $4.94 per share beat estimates by $0.33. Revenue grew by 4% year over year to $2.2 billion, beating consensus estimates of $2.15 billion.
EBITDA increased 6% and EPS increased 18% compared to Q2 2024. H&R Block, Inc. (NYSE:HRB) is also focusing on AI assistance. Here is what the company said regarding AI development during the Q3 2024 earnings call:
“Our Gen AI-powered AI tax assist performed well. As we’ve shared, this innovation was launched for the first time this year. Feedback indicated that the tool was easy to use and helpful in the tax prep process and clients found value-added. Importantly, we saw greater conversion among new clients who leveraged AI tax assist. Both AI tax assist and human help were included at no additional charge in all of our DIY paid online SKUs which we believe is a competitive differentiator. As a result, we exceeded our operational metrics with human help and believe this combination provides clients with the confidence they need in DIY. We also continue to see more DIY clients accessing human help with Tax Pro Review which grew more than 15%, continuing its multiyear trend of double-digit annual growth.
I mean we believe that Gen AI can play a strong role in improving customer experience. As you also heard me mention, we saw the new clients that engage with AI tax assist convert at a higher level. And so we’ll continue to learn and test different ways of including Gen AI in our DIY products. But I feel very good about year 1 at such an early stage of what we saw this year.”
The company is expected to earn $4.33 per share in 2024, up by 21% year over year. H&R Block, Inc. (NYSE:HRB) is trading at a 15% discount to its sector, which shows it is undervalued at the current levels. In addition, the fundamentals of the company are strong. HRB has significantly increased its EBITDA over the past few years and has massively improved its free cash flow.
As we have discussed the overall taxes across the US and one of the leading tax service providers in the country, let’s now talk about the US state where people will pay the most taxes in 2024.
Pixabay/Public Domain
Our Methodology
We collected tax data including personal income tax, property tax, and state sales tax from the Tax Foundation, as of 2024. We have calculated the tax burden of each state by adding all the taxes and finding the total taxes paid against the average individual income of the state. The data for average individual income for each state was taken from Forbes. We have ranked the 20 US states where people will pay the most taxes in 2024 in ascending order of their tax burden.
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The US State Where People Will Pay The Most Taxes in 2024
California
State Tax Burden: 22.40%
Income Tax: 14.40%
Sales Tax: 7.25%
Property Tax: 0.75%
California has the highest top individual income tax rate of 14.40%, while the lowest income tax rate is 1%. California has almost nine income tax brackets which implies a progressive tax structure. Incomes ranging between $0 and $10,412 are imposed 1% income tax. Individuals with income equal to $698,272 or more are imposed with an income tax rate of 12.30%. Similarly, married couples filing jointly whose income is equal to $1,396,542 or more are taxed 12.30%.
California has a state sales tax of 7.25%. The state has a local sales tax of up to 1.6%, which takes the combined state and local sales tax rate to 8.85%. With a total tax burden of 22.40%, California is the top US state where people will pay the most taxes in 2024.
If you want to know about other US states where people will pay the most taxes in 2024, you can check our report on the 20 US States Where People Will Pay The Most Taxes in 2024.
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