The average state’s consumption tax structure is equivalent to an income tax with a 7.1 percent rate for the poor, a 4.8 percent rate for the middle class, and a 0.9 percent rate for the wealthiest taxpayers. Few policymakers would intentionally design an income tax that looks like this, but many have done so by relying heavily on consumption taxes as a revenue source. The distributional impact of state and local tax systems based on income also have clear implications for wealth inequality among racial groups. On average, the lowest-income 20 percent of taxpayers face a state and local tax rate more than 50 percent higher than the top 1 percent of households.
Thus, better-off people pay the same absolute tax on an expensive premium beer as low-income families pay on a run-of-the-mill variety. As a result, excise taxes are usually the most regressive kind of tax. On average, poor homeowners and renters pay more of their incomes in property taxes than do any other income group — and the wealthiest taxpayers pay the least. On average low-income families pay 4.2 percent of their incomes, middle-income families pay 3.0 percent of their incomes, and the top 1 percent pay 1.7 percent. 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.
Taxes aren’t everything
Employers can expect their 2022 RT tax rate notices in early 2022, before the first quarter reports are due. An employer may appeal the tax rate within 20 days from the date of notification (date printed on the Reemployment Tax Rate Notice (Form RT-20). The maximum tax rate allowed by law is 5.4% (.0540), except for employers participating in the Short Time Compensation Program. Visit the Department’s Reemployment Taxwebpage for more information. Interest is assessed on the amount of taxes or fees due that was not paid on time. This includes late or underpayments of taxes or fees, and collection allowances that have been reduced due to underpayments of tax or disallowed because the return was filed late.
states by income tax rate had the lowest tax burden in the U.S. in 2021, though it was also one of the least affordable states to live in. Jim Probasco has 30+ years of experience writing for online, print, radio, and television media, including PBS. His expertise includes government programs and policy, retirement planning, insurance, family finance, home ownership and loans. He has a bachelor’s from Ohio University and Master’s from Wright State University in music education. That means they tax all income, or dividends and interest only in some cases, at the same rate.
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Some states tie their standard deductions and personal exemptions to the federal tax code, while others set their own or offer none at all. The large chart at the top of each page shows total average state and local taxes by income group. Three smaller charts appear below it and show the distribution of each state’s sales and excise, personal income, and property taxes by income group.
Data were drawn from Tax Analysts, Federation of Tax Administrators and individual state tax return forms. Arkansas experienced a budget surplus of nearly $1.5 Billion in the fiscal year ended June 30, 2022. In addition to federal income tax collected by the United States, most individual U.S. states collect a state income tax. Some local governments also impose an income tax, often based on state income tax calculations. Forty-two states and many localities in the United States impose an income tax on individuals. Eight states impose no state income tax, and a ninth, New Hampshire, imposes an individual income tax on dividends and interest income but not other forms of income .
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The first two columns show the state’s total tax burden (state income taxes + sales and excise taxes + property taxes) as a percentage of personal income followed by the rank that the state holds among all 50 states. In the following tables, we have compiled the most up-to-date data available on state individual income tax rates, brackets, standard deductions, and personal exemptions for both single and joint filers. After the tables, we document notable individual income tax changes implemented in 2022.
Graduated tax rates are progressive, so in our example, everyone pays 3.75% on the first $66,200, 4.75% on the next $84,350 and 5.99% on all income over $150,550. The dollar amounts for each bracket vary significantly from state to state, as do the rate at which each bracket is taxed. And while a handful of states don’t impose any income tax at all, they often make up the difference elsewhere, such as sales and property taxes. Graduated, or progressive, tax rates use a series of income thresholds called brackets to assess taxes. Local governments—including smaller townships and counties—may also impose income taxes.