Is Your State Tax-Friendly? Only 5 Were Given an A-Grade (and 4 Failed)

Entrance greeting sign on the highway border between Nevada and Arizona state USA.
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As tax season gets underway, it’s not just federal taxes that are a big topic of conversation. There’s also state taxes, too, and a new report shows just how well some states are graded on their tax policies, with five receiving an “A” and four getting a failing “F.”

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For the study by finance site MoneyGeek, states were graded on their “tax burden” for the average resident — the lower the burden, the higher grade the state received. To gather the findings, MoneyGeek ascertained what an average family would pay in state taxes in 2023 using data collected from the Bureau of Labor Statistics’ Consumer Expenditure Survey along with incomes reported by the U.S. Census Bureau and housing information from Zillow.

MoneyGeek stated they then created a “hypothetical family” including one dependent, an adjusted gross income (AGI) of $87,432 representing the median national income and a property value of $374,665, also reflecting the national new home median price. While most states fell in the middle, averaging a “B” or “C” grade, there were nine states that stood out for their high marks or low standards.

Among the states with the lowest tax burden, the five earning an “A” included:

  1. Wyoming (3.9% of income).
  2. Nevada (4.6% of income).
  3. Tennessee (5.5% of income).
  4. Alaska (5.5% of income).
  5. Florida  (5.6% of income).
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Conversely, among the states with the highest tax burden, these four earned an “F” grade:

  1. Illinois (16.9% of income).
  2. Connecticut (15.3% of income).
  3. New Jersey (14.8% of income).
  4. New Hampshire (14.3% of income).

Not far behind were New York, Iowa, Vermont, Wisconsin, Nebraska and Michigan, which all earned D grades.

The starkness of the highs and lows stands out as well, as MoneyGeek noted, “For a typical middle-class family, the tax burden difference between living in the highest-tax state (Illinois) and the lowest-tax state (Wyoming) is $11,340 per year.”

An analysis from The Hill noted that there are eight states that have no income taxes — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — which made them score favorably even though there are generally higher sales taxes in these states that hurt their grade. For example, Tennessee has a sales tax rate of 9.55%. While there are some states with high income tax rates — like California — due to many tax credits, deductions and strategic tax brackets, residents usually don’t end up paying as much as other states with lower income tax rates.

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The news comes as the Tax Foundation reported that many families migrated last year, largely choosing states with friendlier tax policies and leaving behind those with higher tax rates. As the organization reports in one example, Illinois lost 0.8% of its population in 2022.

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GOBankingRates also recently reported that 27 states (nearly half of the nation) are now eyeing personal income tax cuts, or nixing them altogether as many states are amassing budget surpluses. In two cases, Mississippi and Arkansas, leaders believe having no state taxes would be a boon to attract businesses as well as new households.

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About the Author

Selena Fragassi joined in 2022, adding to her 15 years in journalism with bylines in Spin, Paste, Nylon, Popmatters, The A.V. Club, Loudwire, Chicago Sun-Times, Chicago Tribune, Chicago Magazine and others. She currently resides in Chicago with her rescue pets and is working on a debut historical fiction novel about WWII. She holds a degree in fiction writing from Columbia College Chicago.
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