When it comes to paying taxes, where a person lives can make a big difference. Although the Federal income tax remains the same for all Americans, state taxes can vary greatly. Each state has its own tax rate and each also has different income brackets and exemptions. In fact, some states do not levy any statewide income tax and others charge a flat rate for everyone.

Part of the difference has to do with how prosperous a state might be. States such as Alaska, with its wealth of oil resources, and Florida, with its booming tourist trade, do not charge any state income tax. Other states, such as Massachusetts (derisively referred to as "Tax-achusetts"), have acquired reputations for having high tax rates. Such reputations weigh heavily in annual rankings by national business magazines for the best places to live in America.

Highs and Lows

Despite its reputation, Massachusetts does not have anywhere near the highest individual tax rate in the country. As of January 1, 2005, the state charged a flat rate of 5.3 percent for all its citizens. It might be surprising that the dubious honor of having highest starting state income tax rate belongs to North Carolina at 6 percent, a state in the heart of the rapidly growing Sunbelt. The Tar Heel State (at 8.25 percent) dodges the claim to the highest tax bracket in the country, which belongs to Vermont at 9.5 percent, just ahead of California's 9.3 percent.

These numbers can be deceiving with regard to the wealth of the states since much depends on the complexity of the state tax system. For example, California has six different tax brackets (1 percent to 9.3 percent) while North Carolina has only four. Of course, the six states with a flat tax rate have only one bracket, but the record for the most tax brackets belongs to Missouri with ten, the top rate being 6 percent, the starting point for North Carolina.

States Without Taxes

Where, then, does one decide to live? There are seven states that levy no income tax. In addition to Alaska and Florida, they are Nevada (which is supported largely by legalized gambling), South Dakota, Texas, Washington, and Wyoming. Two other states, Tennessee and New Hampshire, limit income taxes to proceeds from stock dividends and earned interest.

contact@taxwriting.com