The 10 Best and 10 Worst States for Property Taxes

state income and property tax rates by state highest to lowest

The $10,000 cap on the federal deduction for state and local levies for Americans who itemize, known as SALT, has been a pain point for areas with steep income and property taxes. In just looking at median property tax bills, Arkansas also ranks among the top of the lowest property tax states. Residents in the state pay just under $700 on their annual property taxes. A comparison of 2020 tax rates compiled by the Tax Foundation ranks California as the top taxer with a 12.3% rate, unless you make more than $1 million. The additional tax on income earned above $1 million is the state’s 1% mental health services tax.

But none of these six tax systems are robustly progressive in a traditional sense. Depending on where you live, some states and local governments offer property tax exemptions to homeowners for real estate taxes owed on their property. These exemptions protect certain classes of homeowners like seniors, veterans, members of the Armed Forces and people with disabilities and helps reduce the amount they must pay for their property. Arkansas’s top individual income tax rate declined from 5.9 percent to 5.5 percent as a result of legislation passed during the state’s December 2021 special session.

States with flat income tax rates

Middle-income families in these states pay a rate up to four times higher as a share of their income than the wealthiest families. The national effective state and local tax rate is 11.4 percent for the lowest-income 20 percent; 9.9 percent for the middle 20 percent; and 7.4 percent for the top 1 percent . This means the poorest Americans are paying one and a half times as much of their income in taxes than the top 1 percent.

Note that there’s a tie for third and fifth place for states with the lowest average effective property tax rates. In contrast to states that improve tax fairness with tax credits for low-income families, more than a dozen states currently allow substantial tax breaks for the wealthy that undermine tax progressivity. Two of the highest state income tax rates most regressive state income tax loopholes are capital gains tax breaks and deductions for federal income taxes paid . However, using a graduated rate structure is not enough to guarantee an overall progressive income tax; some graduated-rate income taxes are about as fair as some flat-rate taxes, and some even less fair.

What 10 states have the highest property taxes?

Seven of these states do not levy a broad-based personal income tax while the remaining three have a personal income tax rate structure that is flat or virtually flat. A calculation of effective sales and excise tax rates finds that, on average, the lowest-income 20 percent pay 7.1 percent, the middle 20 percent pay 4.8 percent and the top 1 percent pay a comparatively meager 0.9 percent rate. On average low-income families pay .04 percent of their incomes, middle-income families pay 2.1 percent of their incomes, and the top 1 percent pay 4.6 percent. Of the three major taxes used by states, the personal income tax is the only one under which effective tax rates rise with income levels. States often use progressive income taxes as tools to help offset more regressive state and local taxes. Income taxes are just one part of the overall tax burden of living in a state. Your personal tax burden at the state level can vary widely depending on your financial circumstances.

Lake Providence, Louisiana has the dubious distinction of most expensive sales tax city in the country in 2021, with a combined state and city rate of 11.45%. For reference, assessed home values represent 1/10 of the home’s actual value. For example, a $100,000 home would have a $10,000 assessed value. Therefore, Louisiana’s homestead exemption allows the first $75,000 of home value not to count toward calculating your property tax bill, which goes a long way toward lowering the percentage of income that goes toward these taxes. Currently, 41 states and the District of Columbia levy a personal income tax. Weighing the tax landscape against your financial picture could help you stretch your dollars further. Any petition challenging the county clerk’s final determination shall be filed within ten days of the issuance of the clerk’s final determination.

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Using expenditure and income data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, we constructed a hypothetical family with one dependent, gross income of $82,852, and a home worth $349,400 . We then estimated the state taxes this hypothetical family would pay in each state. We ranked the states based on the estimated total taxes and assigned letter grades from A to E based on the size of the tax payment. Seven states offer an income tax credit to help offset the sales and excise taxes that low-income families pay. Some of the credits are specifically intended to offset the impact of sales taxes on groceries.

state income and property tax rates by state highest to lowest

If you were wondering, the seven states without an income tax are Nevada, Washington, South Dakota, Texas, Florida, Wyoming, and Alaska. Note that typical math rounding rules are ignored in this calculation.

The local income tax is calculated as a percentage of your taxable income. Local officials set the rates, which range between 2.25% and 3.20% for the current tax year. States tend to have flat tax rates because they’re believed to be simpler to administer and regulate, according to Davis.

Its six-tier graduated tax rates range from 4 percent to 8.95 percent. Because the top tax rate of 8.95 percent is a “millionaire’s tax,” most District residents pay a lower top rate. And most of those at the bottom of the income scale are held harmless by a generous Earned Income Tax Credit provided at 40 percent of the federal credit for workers with children and 100 percent for workers without children in the home. Just as the combination of flat (or non-existent) income taxes and high sales and excise taxes leads to regressive tax systems, the least regressive tax systems have highly progressive income taxes and rely less on sales and excise taxes.

And while property tax rates can vary considerably within states, some states impose a statewide limit on the maximum rate. Property taxes were also 7 percent or more of state own-source revenue in Arkansas, Montana, and Wyoming. In addition to business equipment and cars, state personal property taxes are sometimes levied on land that is used for utilities. At the state level, property taxes accounted for 1 percent of state own-source general revenue in 2019. However, Vermont’s property taxes contributed 25 percent of its state own-source general revenue that year, far and away the highest percentage in any state. Nearly all of Vermont’s education spending is financed at the state level, and the state’s property tax on real property is the largest source of that funding.

state income and property tax rates by state highest to lowest

In fact, relocating to another state can knock your state tax bill up or down by thousands of dollars. You could, for instance, go from a state with no income taxes to one with very high rates. Other state and local taxes ‒ like sales taxes and property taxes ‒ can vary dramatically from one state to the next, too. That’s why it’s so important to understand the tax consequences of an interstate move before you call the moving company. As of Jan. 1, 2022, states with the top marginal individual income tax rates are California (13.30%), Hawaii (11.00%), New York (10.90%), New Jersey (10.75%), and Washington D.C. States with the lowest individual income tax rates are Indiana (3.23%) and Pennsylvania (3.07%). However, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming have no state income tax, while New Hampshire only taxes interest and dividends income and Washington only taxes capital gains income.