As the 2014 tax season draws to a close, upper-income U.S. taxpayers will pay lower effective tax rates that those in the low- and middle-income segments, according to an analysis by WalletHub.
The personal finance social network based its analysis on data from the Institute on Taxation & Economic Policy, which reported that top-tier earners, the 1% who make $471,000 or more, pay 5.4% of their income in state and local taxes, compared with 9.4% for those in the middle, earning between $35,000 and $56,000, and 10.9% for those bringing in $19,000 or less.
(Check out 10 Best & Worst States for Low-Income Taxpayers.)
The institute’s 2015 report calculated the share of income a person contributes toward property taxes, sales and excise taxes, and income taxes in the 50 U.S. states and the District of Columbia.
WalletHub’s analysis focused on the state-specific tax burden for three income groups: high ($150,000), middle ($50,000) and low ($25,000).
Despite their relatively low tax burden, those in the highest income group shoulder higher effective rates depending where they live, according to WalletHub.
The tax institute’s report delves into matters that will be top of mind for voters in 2016: the large disparities in advantages accruing to wealthy people compared with those who are just getting along or are struggling.
It identified 10 states — Washington, Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas and Indiana — where those in the bottom fifth of the income scale pay rates up to seven times higher as a share of their income than the wealthy, and middle-income families pay up to three times more.
These states tend to rely on sales and excise taxes, which are especially onerous for low-income people, rather than income taxes. Property taxes in these states also hit poor homeowners and renters harder than wealthier residents.
In contrast, Vermont has what the institute characterizes as a “highly progressive” income tax in which upper-income families pay a larger share of their incomes in tax than do those in lower income brackets, and the state has low sales and excise taxes.
Following are the best and worst states for taxpayers making $150,000 in terms of their overall tax burden in 2015, based on WalletHub’s analysis. The total state and local tax rate for those making $25,000 is included for comparison. Best States for High-Income Taxpayers
5. South Dakota
Sales tax: 3.09%
Property tax: 2.09%
Income tax: 0.00%
Total state and local tax: 5.17%
Total state and local tax for low-income taxpayers: 9.80%
Sales tax: 3.27%
Property tax: 1.51%
Income tax: 0.19%
Total tax: 4.97%
Total tax for low-income taxpayers: 9.17%
Sales tax: 2.21%
Property tax: 2.05%
Income tax: 0.46%
Total tax: 4.71%
Total tax for low-income taxpayers: 7%
Sales tax: 2.22%
Property tax: 1.76%
Income tax: 0.00%
Total tax: 3.98%
Total tax for low-income taxpayers: 7.68%