5 States Where Tax Filers Are Paying the Highest Percentage of Their Income
In this article, we will look at 5 states where tax filers are paying the highest percentage of their income.
American Income Taxes: An Analysis
The taxes paid by US citizens across all the states are different. The states with the highest income taxes in the US are the ones where tax filers are paying the highest percentage of their income. The US tax system has made legislative changes and several states have gone through income tax cuts in 2024. Overall, thirty-four states went through notable tax changes, which took effect on January 1, 2024. Two states including California and Michigan have increased their income tax rates from 13.30% and 4.05% to 14.40% and 4.25% in 2024, respectively. Most of the states in the US have taken legislative measures to reduce their taxes and will gradually bring them into effect in the coming years. There are already several states in the US with no sales tax or income tax.
In 2023, the US federal government collected a total revenue of almost $4.44 trillion, as per the US Treasury. The primary source of revenue was personal income taxes. In fiscal year 2024 so far, the US federal government has gathered $1.58 trillion in revenue from October 2023 to January 2024. Almost 51% of the revenue is contributed by personal income taxes, which accounts for $808 billion of the total revenue in 2024 so far. Corporate income taxes have added nearly 10.70% to the federal government revenue in 2024. Compared to the fiscal year 2023, the federal government collected $1.47 trillion in revenue between October 2022 and January 2023. The federal government has spent nearly $2.12 trillion since the start of fiscal year 2024 compared to a total spending of $1.93 trillion for the same period in fiscal year 2023. The deficit in this fiscal year has added to the country’s national debt of $34.27 trillion through February 15, 2024. To cover the deficit, the federal government borrows additional funds that lead to a further increase in national debt.
For the tax year 2024, the Internal Revenue Service (IRS) has gone through approximately 60 tax provisions. The changes in tax year 2024 will apply to tax filers in 2025. The individual taxpayers continue to have the same top tax rate at 37% from 2023 with income greater than $609,350. Married couples filing jointly also have a top tax rate of 37% with income higher than $731,200. The minimum income tax rate for individual taxpayers is 10% with an income of $11,600 or less. Other tax rates for individual taxpayers and married couples filing jointly are 35%, 32%, 24%, 22%, and 12%. Among the 60 tax provisions for 2024, the IRS has raised the standard deduction to $14,600 for individual taxpayers and married individuals filing separately, rising by $750 from tax year 2023. The IRS has increased the standard deduction to $29,200 for married couples filing jointly, an increase of $1,500 from tax year 2023. The personal exemption stays at zero for the tax year 2024.
American Tax Services Providers
Tax services providers offer a wide range of consultancy and other services. H&R Block, Inc. (NYSE:HRB), Intuit Inc. (NASDAQ:INTU), and CBIZ, Inc. (NYSE:CBZ) are some of the leading tax services providers in the world.
H&R Block, Inc. (NYSE:HRB) is a top tax preparation company based out of the US. On February 6, H&R Block, Inc. (NYSE:HRB) announced that Chief Financial Officer Tony Bowen has decided to retire. Bowen will stay at the company until September 2024, committed to a smooth transition. On February 6, the company also reported its second quarter results for 2024. H&R Block, Inc. (NYSE:HRB) reported a revenue of $179.08 million, beating consensus estimates by $9.63 million. Here are some of the comments from the Q2 2024 earnings call:
“Turning to Q2 results, performance continues to meet expectations, and, today, we reaffirmed our fiscal year outlook. In the quarter, revenue grew 8% as we had a strong finish to the extended filing season. In addition, we saw consumers in need of cash, and many turned to H&R Block to meet their financial needs with our new Emerald Advance offering, which we believe bodes well for the tax season.”
CBIZ, Inc. (NYSE:CBZ) is a leading provider of financial, insurance, and advisory services. On February 7, CBIZ, Inc. (NYSE:CBZ) announced that it has acquired tax and accounting services provider, Erickson, Brown & Kloster, LLC (EBK). EBK offers tax and accounting services to various business segments including wholesale, real estate, automotive, and medical services, among others. In 2023, EBK reported a revenue of approximately $8.9 million.
Intuit Inc. (NASDAQ:INTU) is a leading global financial technology firm that owns Intuit Credit Karma, TurboTax, QuickBooks, and Mailchimp. On February 7, Intuit Inc. (NASDAQ:INTU) announced that it is collaborating with Khan Academy to provide free financial education tools to educators and students. Through this initiative with Khan Academy, Intuit Inc. (NASDAQ:INTU) is planning to engage 50 million students with free learning resources by 2030.
Now, let’s take a look at the states where tax filers are paying the highest percentage of their income.
The Methodology
To compile our list of the states where tax filers are paying the highest percentage of their income, we shortlisted the top 20 states with the highest personal income tax rates, as of 2024. We have used top-end personal income tax rates. Secondly, we have used the per capita income of states which gives an idea of the income level of the state. We have ranked the lists based on their top personal income tax rate. We have used per capita income of states as a tie-breaker. The data for personal income tax rates was taken from the Tax Foundation and the per capita income for each state was taken from the US Census Bureau database. The data for per capita income was available till 2022.
Note: Though ‘The District of Columbia (DC)’ is not a state, it is not part of any state either. We have listed DC among the states where tax filers are paying the highest percentage of their income.
5 States Where Tax Filers Are Paying the Highest Percentage of Their Income
5. New Jersey
Per Capita Income (2022): $50,995
Personal Income Tax Rate (2024): 10.75%
New Jersey has a per capita income of $50,995 and a personal income tax rate of 10.75%. New Jersey is one of the top states with the highest income tax rates in the US.
4. District of Columbia
Per Capita Income (2022): $71,297
Personal Income Tax Rate (2024): 10.75%
The taxpayers in the District of Columbia have to pay a top tax of 10.75% on their personal incomes. The District of Columbia has a per capita income of $71,297 and ranks fourth among the states where tax filers are paying the highest percentage of their income.
3. New York
Per Capita Income (2022): $47,173
Personal Income Tax Rate (2024): 10.90%
The taxpayers in New York have to pay a top tax of 10.90% on their personal incomes. New York has a per capita income of $47,173 and ranks third among the states where tax filers are paying the highest percentage of their income.
2. Hawaii
Per Capita Income (2022): $42,683
Personal Income Tax Rate (2024): 11%
The taxpayers in Hawaii have to pay a top tax of 11% on their personal income. Hawaii has a per capita income of $42,683.
1. California
Per Capita Income (2022): $45,591
Personal Income Tax Rate (2024): 14.40%
California has the highest personal income tax rate in the US. California has a per capita income of $45,591 and ranks first among the states where tax filers are paying the highest percentage of their income.