It’s taxing to live in this state.
This week, personal finance site Kiplinger’s released its list of the most — and least — tax-friendly states in America. To determine this, it used a hypothetical couple with two kids and $150,000 in income a year plus $10,000 in dividend income, and then looked at their income, property and sales tax burden.
Illinois took the No. 1 spot on the list, thanks in large part to their very high property taxes. That was followed by Connecticut and New York, both of which have pretty high income taxes.
The 10 least tax-friendly states:
3. New York
5. New Jersey
Meanwhile, the most tax-friendly states (in order) were Wyoming, Nevada and Tennessee. The first two don’t have income tax; Tennessee has income tax but it only applies to interest and dividends and doesn’t apply to salaries and wages.
The 10 most tax-friendly states:
7. South Dakota
8. North Dakota
10. New Hampshire
One seeming surprise? California, which many think of as a high-tax state, didn’t crack the top 10 least-friendly tax states. (Of course, it’s important to point out that this Kiplinger’s ranking would look different if the hypothetical family and its income and dividends were different.)
Rocky Mengle, the tax editor for Kiplinger’s, tells MarketWatch that’s because many people “when they talk about California tax, they focus on the 13.3% rate, which is the top rate — but that is for people making more than $1 million.” For many others, the rate is much lower, he says, adding that “California has a fairly progressive income tax with nine brackets.”
Mengle adds that these kinds of analyses are often very useful to people looking to relocate, like in retirement. If that’s the case, he says, retirees should also “pay attention to what type of income they are going to be relying on in their golden years.” That’s because states tax income, Social Security, money from an IRA or 401(k), rental property income and more differently.
For example, Social Security income is not taxed in most states, but 13 states do tax it. These include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. And even then, they don’t all tax it the same.
Retirees may also want to consider the inheritance and estate tax in the spot they want to move. Right now, 13 states and Washington, D.C. have an estate tax and six have an inheritance tax. This NerdWallet guide can walk you through that.