States That Tax Six Figure Incomes At A Higher Rate
This post is for you high income earners, or those who aspire to be. So this post is for pretty much everyone still working, I hope.
In the U.S. the Tax Cuts and Jobs Act of 2017 set new marginal tax brackets for Federal Income Taxes. The new marginal tax brackets are below.
| Rate | Individuals | Married Filing Jointly |
| 10% | Up to $9,525 | Up to $19,050 |
| 12% | $9,526 to $38,700 | $19,051 to $77,400 |
| 22% | 38,701 to $82,500 | $77,401 to $165,000 |
| 24% | $82,501 to $157,500 | $165,001 to $315,000 |
| 32% | $157,501 to $200,000 | $315,001 to $400,000 |
| 35% | $200,001 to $500,000 | $400,001 to $600,000 |
| 37% | over $500,000 | over $600,000 |
So top earners out there are giving Uncle Sam 37% of what they make over $500 or $600k. However, depending on where you live, if you are one of these top earners or even someone earning “just” a low 6-figure income, you might have state income taxes to deal with as well.
States are all over the map as to how they tax income.
- Seven US states have no individual income tax – Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
- Two more only tax dividends and investment income, but not W2 income – Tennessee and New Hampshire.
- Another eight have a flat tax rate – Colorado, Illinois, Indiana, Massachusetts, Michigan, North Carolina, Pennsylvania, and Utah.
The remaining 33 states have various marginal tax brackets similar to the Federal System. But the bracket amounts and tax percentages vary greatly.
For instance Hawaii has 12 brackets (twelve!). While others like Alabama have only three.
Of the 33 states that have varying marginal rates based on brackets, the 17 states in yellow below have separate (and higher) rates for incomes over $100,000.
These extra brackets for high income earners have sometimes been called a “millionaires tax” and in many states they approach or go over 10%.
For the states that have these brackets, I listed just the highest bracket (both the tax % and income level). And I listed for both a single filer (S) and married filing jointly (MFJ).
Yep, you’re seeing that correct, California has a 13.3% top marginal rate. But that’s for people making more than a million.
Here are California’s 10 marginal brackets.
You may not be a movie star making a few million a year and getting hit at 13.3% (although I’m sure the majority of those folks find ways around it…), but you may be a doctor with a $300,000 adjusted gross income.
It’s not like there aren’t a bajillion doctors in the personal finance blogosphere.
So let’s do a scenario. In California, if you are a single filer and have a $300k AGI, that last $24,262 of your income is taxed at 10.3%.
Of course that’s in addition to the 35% that Uncle Sam is chopping off for the last $100,000 (the 35% Federal marginal bracket starts at $200k)
That means the last $24,262 you earn is being taxed a combined 45.3%. Ouch.
Hawaii is worse. Hawaii doesn’t have a rate as high as California, but they start hitting you harder at a relatively lower income.
Here are the marginal state income tax brackets for Hawaii.
Back to our hypothetical scenario, a single filer making $300,000 per year will pay 46% on the last $100,000 if they live in Hawaii. That’s 11% to Hawaii and 35% to Uncle Sam.
46% of $100,000 is $46,000.
That’s $46,000 tax on just the last $100,000k of income. Of course this simple scenario doesn’t account for interest deductions and dependents, but at those high income levels many deductions and credits are phased out.
How Big Is The Jump?
Another thing to consider is how big the jump is from the second to last bracket to the top bracket.
Of the 17 states highlighted above, here are the three that have the largest increase in tax percentage for their top bracket.
New Jersey: The jump from 6.37% to 8.97% is 2.5%
| Rate | Individuals | Married Filing Jointly |
| 6.37% | > $75,000 | > $150,000 |
| 8.97% | > $500,000 | > $500,000 |
Minnesota: The jump from 7.85% to 9.85% is 2%
| Rate | Individuals | Married Filing Jointly |
| 7.85% | > $85,060 | > $150,380 |
| 9.85% | > $160,020 | > $266,700 |
New York: The jump from 6.85% to 8.82% is 1.97%
| Rate | Individuals | Married Filing Jointly |
| 6.85% | > $215,400 | > $323,200 |
| 8.82% | > $1,077,550 | > $2,155,350 |
Notice that Minnesota’s starts affecting a much lower income level than the other two. So let’s look at another hypothetical scenario.
You’re a single filer in Minnesota making $150,000 AGI per year and you are offered a promotion to a new position that pays $190,000. On paper your raise is $40,000. But everything over $160,000 – a full $30,000 – is taxed by Minnesota at a 2% higher rate.
$30k x 9.85% = $2955.
If that money were taxed at the previous bracket of 7.85%
$30k x 7.85% = $2355
So in this case Minnesota’s ‘millionaire tax’ is an additional $600. This of course is without deductions etc. and just using the rates as a guide.
The extra $600 tax is relatively small for a promotion that size, but it’s worth knowing what’s going on behind the curtain.
And since the Federal brackets jump by 8% at $157,500 to 32% tax, our hypothetical promotee will pay a 41.85% total combined marginal rate between Federal and State income taxes on $30,000 worth of income.
The good news here is that if you itemize your Federal deductions you can usually deduct your state income taxes on your Federal return, thus lowering your Federal AGI.
Knowledge Is Power
This post is not intended to argue for or against progressive tax systems. That gets political very quickly and Accidental FIRE is a blessed corner of the internet where we avoid online political debates.
Because kittens die, nuns cry, and unicorns lose their glitter when people argue politics on the internet.
The point of this post is to highlight states that target six figure incomes with separate and higher marginal tax rates. If you’re considering a move to another state and expect to make a six figure income, it’s nice to know how much extra the state will be slicing off the top portion of your income.
And as I’ve highlighted, when combined with your federal taxes, it can be quite alarming as a total.
As one of those bajillion doctors in the blogosphere (lol), one of the greatest thing I did was move to my current state and use geoarbitrage to my advantage (I hate to admit it but this was done purely out of blind luck as I had no clue about it and just found the right location by accident).
I was formerly practicing in Ohio where not only is there a state tax but there is a city income tax as well. And the fact that I earned my money in Cleveland Ohio but lived in a neighboring city meant I had to pay taxes for BOTH (there was a little tax credit but it was insignificant).
I estimate that just on these state and local taxes alone I save at my salary over $100k a year. Sure my sales tax is higher, but to make up the difference in savings, I would have to spend a couple million a year in goods (I don’t).
I find it incredible how much “sunshine tax” docs have to pay to work in California. That is a highly progressive tax system. That coupled with the fact that the average pay of docs there is often way lower than their counterparts in other LCOL of living areas means that there is a double whammy for these docs. I estimate that I cut off 5-10 years of work needed to hit my nest egg compared to someone in a similar position there because of the HCOL vs LCOL difference.
Blind luck is good 🙂 Cali and Hawaii are indeed a bit nuts!
I basically subscribe to your blog because of the maps and pictures in all your posts. Great info, as always. Thanks!
Thanks for your readership and kind words!
Great research on this. Some states really do have pretty outrageous taxes and that has real consequences, both good and bad. On a personal note, my Parents in Law recently decided to move away from New York (upstate) primarily because they were sick of paying such high taxes. I wonder how many others out there are making similar moves and what effect that has on population / migration trends. Perhaps minimal, but it’d be interesting to see…
Mr. Groovy from Freedom is Groovy left Long Island for the same reason. He’s sitting pretty in N.C.
We have a few weird taxes here. Like on our car. But I’d rather spend under $50 a year on that than over $5K on condo property taxes on LI. We have friends there in homes comparable to our last one in Charlotte. We paid $2K a year. They pay $15 to $20K in property taxes.
15-20K, that’s beyond insane. It should be illegal. You guys made such an awesome move and the ranch is looking good!
I’ve never met anyone not alarmed by the tax man. Whatever number, it always seems to much. Some of those states are killer though.
Now I’m singing the Beatles “Tax Man” in my head, which is a good thing. Great song!
Illinois is currently eyeing a progressive income tax as a fair income tax!
It’s good to know what’s going on!
Wow, that’s quite a complex system there! Is there a calculator that takes all of this into account? I suppose the calc is not too hard to create, all that info on each state might take a while though!
Yeah it would be cool if someone created that. The info on each state is available on taxfoundation.org, but some states make it complex because they do not tax W-2 income but do tax dividends and capital gains. And of course every year some states would be changing, so you have to keep it up-to-date!
Yeah, I’m a high income earning doctor in California. But I don’t complain about it. It’s pretty much a fact of life and something I just accept. Could I move somewhere else with no income tax and save 9-10% of my income? Sure. But California is home and living here is actually really great. (A lot of people still want to live here, and I think most native Californians who move out end up missing it.) As a Californian, you just have to accept high state taxes as fact. You either have to grow your income, optimize your tax minimization strategies, learn to live with less (in this case 9-10% less), or some combination of the three.
Well it sounds like you are at peace with paying those higher taxes, and that’s a good place to be. As long as you’ve built it into your life it’s not that big of an issue
I’m definitely not in the highest tax bracket by any means but I had no Idea Minnesota had some of the biggest tax increases of any state. I know Minnesota tends to be a very blue state, which often means tax increases. I just wasn’t aware of of how we compared to other states. Thanks for posting this!
As I’ve been doing these state-based analyses and posts Minnesota has been faring very well in many categories, so I was surprised to see that too. But in healthcare and education they score very high
Thats good to know, I will be looking for these state based comparisons, they are very interesting. Thanks!
Oregon has high state income tax, but no sales tax. That’s not good for a frugal family like us. I prefer WA. They have sales tax, but no income tax. That’s a better system for us. Oh well, what can you do? Maybe we’ll move after Mrs. RB40 retires.
Very true Joe, maybe Washington is the place you need to be – not too far up the road!
I I’ll take a look at your other analysis posts. I’ve really been quite blind to how Minnesota compares to other states since I haven’t permanently lived anywhere else. Thanks!
“This post is for you high income earners, or those who aspire to be. So this post is for pretty much everyone”
Lol I know right! Everyone should be aiming to up their $$. Is it strange that Cali and Hawaii still appeal so much to high income earners and Cali with lots of companies and jobs? And the homes are forbiddenly pricey. Why is that?
Those two states are pretty ridiculous. I have a friend who lives in Hawaii and he says he’d never be able to buy a house – ever!
“So this post is for pretty much everyone still working”, unless of course, you’re over age 70.5 and forced to take the RMDs from your IRAs. Then this matters again. Thank you for another great look at the state by state tax situations. We still have many years to go before that, so right now in California, we are in the low tax range under 6%. In fact, Big ERN pointed out in a case study that he was somewhat surprised that because of the progressive steps in tax rates for Californians, if a married couple has income below 61K, it is a somewhat low tax state. That cracks me up.
I didn’t think of RMD’s…. And under 6% might be considered “low” for Cali but if you look at other states it’s still high. The tax foundations website lists brackets for all states.
But Cali is beautiful in many ways – I was just out there last week and climbed Whitney!
Ah well, could be worse, we pay almost 52% on everything over €68.507 (about $78.000).
OUCH! Yeah, not sure I’m down with that….
Ah well, some of that tax money makes sure we keep our heads above water, literally 😉
The fact is that knowledge is power. If I lived in CT but worked in NYC, I would pay NYC income tax, NYS income tax, and CT income tax. Fortunately, one is not double taxed, but NYC takes its cut regardless. Also, there is the commuting fee, which is not low.
The point, lime your post, is that all such things should be part of ones thought process as to where to live and work. Perhaps you like the schools in a town so dont mind paying the high property tax in that town. There could be a million such reasons, but one should think about it and make informed decisions!
Knowledge is power – that says it all. What did we do before the internet?