Recent data sheds light on how state income tax rates affect take-home pay for individuals earning a salary of $100,000 in the United States. Our analysis shows that net income after taxes varies dramatically based on the effective state income tax rate used.
In the other one-third of states, with a 0% effective tax rate such as Wyoming and Alaska, workers get to keep more of their hard-earned money. They clear a whopping $78,736. On the other hand, states with higher tax rates make a real impact on net income. For example, Oregon has an effective tax rate of 8.2%, leaving a take-home pay of just $70,540.
Many other states have relatively mid-range tax rates that nonetheless take a large bite out of net income. To take California as an example, their effective rate is only 4.95%, resulting in an after-tax income of $73,784. Likewise, with Delaware’s 4.76% effective tax rate, his net income would be $73,974. These figures show that there is a staunch relationship between tax rate and disposable income down the state.
Additionally, states with an effective tax rate just below the average effective tax rate exhibit similarly inconsistent after-tax income results. For instance, a state with a high 3.82% tax rate still allows people to retain $74,917. By comparison, the next highest state with a 4.27% tax rate nets them a $74,461 take-home pay. This tax gap illustrates the importance of even minor adjustments to tax rates in creating significant variation in post-tax earnings.
People who live in states that have low or no taxes are able to retain a greater percentage of their income. These states rank some of the lowest cost of living, which boosts take-home pay even higher. States like Florida and Texas boast effective tax rates of 0% and allow for a higher net income compared to those with higher taxation.
Tax rates are one thing, but their immediate effects on economic behavior are far more important to consider. Increasing tax burdens frightens residents and businesses away from relocating to states with high tax liabilities. At the same time, states with lower taxes tend to attract more economic activity.