The old saying, “Nothing is certain in life but death and taxes,” resonates with everyone come April. This is because Americans — at least those who earn income and are law-abiding — tend to pay a fair amount in taxes when filing their state and federal tax returns. According to a 2016 GOBankingRates study, the typical tax bill for the average American during the tax season comes out to $10,116.
But, of course, this number fluctuates widely. Your tax bracket, your tax deductions and your location can all influence how much you actually pay the IRS in taxes. In particular, your state of residence might influence your tax rate more than you realize.
10 Most Expensive States to File Taxes
When learning how to file taxes, the first thing you need to know is that states tend to vary in their tax laws. For instance, Oregon has no sales tax, but it makes up the difference in high property taxes, causing it to be a state that is attractive to tourists but not necessarily homeowners.
Income taxes vary by state as well. “State income taxes are often overlooked and not considered for planning or management when talking about income tax burden,” said Mark Steber, chief tax officer of Jackson Hewitt, a fast-growing tax-prep company. “But state income taxes are just as important as federal taxes and can be about 10 percent of income in at least the top-rate states.”
Overall, there are certain states that have higher tax rates than others. All of these states also offer a variety of tax deductions that can decrease taxpayer burdens, and residents can also use free tax filing services to further lower costs. Even so, what the government collects, on average, remains high.
Here are 10 of the most expensive states for filing taxes, ranked by highest state income tax rates.
California’s sales tax is among the highest in the nation with a rate of 7.50 percent, according to SalesTaxInstitute.com. The real drain on Californians’ wallets, however, is the state’s high income tax of 13.30 percent, according to The Tax Foundation.
Luckily, California’s property tax rate is lower. According to The Tax Foundation, the average effective property tax rate as of August 2015 is 0.81 percent — one of the lowest property rates in the U.S.
Oregon’s state income tax rate is a steep 9.90 percent. But with no sales tax and a middle-of-the-pack effective property tax rate of 1.09 percent, Oregon residents have more savings opportunities when shopping for goods and owning a home compared to other states.
Sales and income taxes in Minnesota are both on the high end, at 9.85 percent and 6.875 percent, respectively. Property taxes, however, are a close to the national average (1.13 percent) at 1.19 percent.
Living in Iowa means not only paying a high state income tax but also a high property tax and sales tax well. The income tax in Iowa is 8.98 percent, the sales tax is 6 percent and the effective property tax rate is 1.49 percent.
5. New Jersey
New Jersey residents pay 8.97 percent in income tax. This state also has one of the highest sales tax rates at 7 percent — second only to California and tied with Rhode Island, Mississippi, Indiana and Tennessee. And, New Jersey’s effective property tax rate of 2.38 percent is the highest in the nation.
7. (TIE) Vermont
Vermont isn’t tax-friendly. This state levies a high income tax (8.95 percent) and sales tax (6 percent). As for property taxes, Vermont’s is among the top 10 highest in the nation with an effective property tax rate of 1.71 percent.
7. (TIE) District of Columbia
Tied with Vermont, the District of Columbia has an income tax rate of 8.95 percent. However, the District has one of the lowest effective property tax rates of 0.57 percent — the fifth lowest (tied with South Carolina), to be exact.
As far as sales taxes go, D.C. residents pay more taxes than the national average (5.05 percent) at 5.75 percent.
8. New York
It’s common knowledge that living in New York can get expensive — especially when you include taxes in the equation. New York’s state income tax is a high 8.82 percent, and the effective property tax rate is higher than average at 1.64 percent. Its sales tax, however, is below average at 4 percent.
Despite a low sales tax and a low property tax — Hawaii has the lowest effective property tax rate of 0.28 percent — Hawaii residents still pay a lot in taxes.
This state makes its money through income taxes: Taxpayers on the high end pay 8.25 percent. Thankfully for consumers, Hawaii’s sales tax rate is below average at 4 percent.
Wisconsin’s property taxes rank among the highest with an effective rate of 1.96 percent. The state’s sales tax is close to average, however, at 5 percent. And Wisconsin’s state income tax ranks among the worst at 7.65 percent.
10 Cheapest States to File Taxes
Wouldn’t it be great if all of the states were like the ones below, with little to no state income taxes? More than half of the states with the lowest tax rates don’t have a state income tax rate. Also, many of them have below-average effective property tax rates, indicating home and property owners likely save money living in these states.
But although these states have low income tax rates and property tax rates, some have higher-than-average sales tax rates. Here are 10 of the cheapest states for filing taxes, ranked by lowest state income tax rates.
To save money on taxes, you might want to consider moving to Alaska. This state doesn’t have an income tax nor a sales tax, saving Alaskan taxpayers a ton of money when they get ready to file taxes. Its effective property tax rate isn’t that high, either, at 1.18 percent — it’s slightly above the national average of 1.13 percent.
Considered one of the best states to retire rich, Wyoming boasts no state income tax and a below-average sales tax of 4 percent. Property owners especially save money on taxes; the state has the eighth-lowest effective property tax rate of 0.61 percent, the same as Colorado’s property tax rate.
3. South Dakota
Like its neighbor, South Dakota’s sales tax is only 4 percent, and it doesn’t have an income tax. However, homeowners should be prepared to pay a lot in property taxes; South Dakota’s effective property tax rate is a high 1.32 percent.
Living in Florida means you won’t be paying a state income tax. You will be paying a higher sales tax rate, however, of 6 percent. But, Florida’s middling property tax rate of 1.06 percent should provide some relief for homeowners.
Texas doesn’t have an income tax rate, but it does have a high sales tax of 6.25 percent. And, it has one of the highest effective property tax rates of 1.90 percent — the sixth-highest in the nation.
Washington is another state without an income tax rate. Instead, the state charges more on sales and property. Washington’s sales tax rate is 6.50 percent, and its effective property tax rate is a middling 1.09 percent — the same as Oregon’s property tax rate.
Although Nevada doesn’t have a state income tax rate, and its effective property tax rate is middle-of-the-pack at 0.86 percent, it does have a higher sales tax rate of 6.85 percent. Out of all the states, Nevada’s sales tax is the fourth highest in the nation.
Tennessee taxpayers don’t have to pay state income taxes, either. However, they do have to pay taxes (6 percent) on dividends and investment income.
Plus, the sales tax in Tennessee is a steep 7 percent — the second highest in the country and tied with Mississippi, Indiana, Rhode Island and New Jersey. Still, Tennessee residents save money on property taxes thanks to the state’s effective low property tax rate of 0.75 percent.
9. North Dakota
Unlike the other states on this list, North Dakota does have an income tax rate — but it’s pretty low at 2.90 percent. North Dakota’s sales tax matches the national average of 5 percent, and its effective property tax rate is also close to the national average (1.13 percent) at 1.11 percent.
Rounding out the top 10 states with the lowest tax rates is Pennsylvania. This state has a below-average income tax rate of 3.07 percent, but both its sales tax and property tax rates are higher than average at 6 percent and 1.54 percent, respectively.
Taxes by State: Full Ranking of the Cheapest and Most Expensive States to File Taxes
Below is the complete ranking of the most and least expensive states to file taxes, starting with the most expensive. To better estimate your tax return, it helps to remember your state’s various tax rates.
For a reference, here are the U.S. national average tax rates:
- Average state income tax rate: 5.38%
- Average sales tax rate: 5.05%
- Average property tax rate: 1.13%
|State||Income Taxes % (2016)||Sales Taxes % (2016)||Property Taxes % (2015)|
|District of Columbia||8.95||5.75||0.57|
**State only taxes interest and dividend income.
How to Save Money When Filing Taxes
As you can see, your state’s tax laws could mean paying more or less in taxes. But whether you live in California or Alaska, there are multiple ways you can pay less in taxes — including federal taxes, state income taxes, property taxes, sales taxes and more — when you file your next tax return.
Keep the following tax tips in mind if you want to pay less in taxes.
1. Take Advantage of Free Tax Services and Online Tax Preparation Software
For starters, see if you can file taxes for free by filing taxes online. There are many tax preparation companies out there advertising free federal tax filing services.
So if you file taxes online, make sure you’re using a free tax filing service or affordable tax software programs. From the IRS’ Free File program to H&R Block and TurboTax, there are a handful of cheap and free tax preparation services (commonly referred to as “tax prep software”) that can make tax filing much easier and less expensive.
Also, do a separate search for free state tax filing, and always see if you can e-file taxes — or e-file your tax return — by searching for e-file services or free online tax filing services for state taxes. But be aware that it might be hard to find free state filing services.
And as always, keep an eye out for tax preparation fees. The fewer the fees you’re subject to this tax season, the less you’ll spend overall.
2. Find an Affordable Tax Preparer
If you prefer to have someone else file your taxes, that’s fine. Tax preparers, tax accountants and financial advisors can help you avoid making mistakes on your tax return as well as answer all of your tax questions.
Just make sure your tax preparer isn’t charging you too much in fees. Always compare your tax preparer’s fees to other preparers’ fees to make sure you’re getting the best deal.
3. Use a Professional Who Understands Your State’s Tax Laws
“That may seem obvious,” said Steber, “but if you are a New York or New Jersey resident part of the year, be sure if you use a Florida tax return preparer that they have specific experience with tax laws in New York or New Jersey or whatever state you are from.”
Additionally, Steber recommended that taxpayers and their professionals also keep up with “life changes that may be the same for federal but might be different for state.”
“There are many state-specific rules on retirement payments, small businesses and earned income credit, among others, that are different for state,” he explained. “Make sure you and your professional understand the state rules.”
4. Save Your Tax Refund
Here’s another tip that you can apply next year when you file taxes: Save your tax refund. It could help you cover part of your tax bill when you file your IRS tax return or help you cover your tax preparation fees.
5. Claim Tax Deductions
And lastly, don’t forget about the dozens of tax deductions you might qualify for. You’d be surprised by what you can deduct if you meet certain requirements, such as work uniforms, transportation, student loan interest, medical expenses and more.
Keep Reading: 10 Most Common Federal Tax Forms Explained
Chad Fisher contributed to the reporting for this article.