If you live and work in the U.S., you're probably aware that taxes are simply a part of life. But the amount you ultimately pay isn't just based on how much you earn; it's also based on where you reside.
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While California tends to get a bad rap when it comes to local taxes, it's actually not even close to being this year's greatest offender on the tax front. According to 2016 data out of WalletHub, the state with the highest taxes is actually none other than New York. California, meanwhile, didn't even make the top 10, though some of the states that did may surprise you.
Who pays the most?
For the purpose of our discussion, we're ranking the 50 states in terms of overall tax burden, which is the percentage of total income that's paid toward state and local taxes. In collecting its data, WalletHub aggregated three distinct types of taxes -- real estate taxes, individual income taxes, and sales and gross receipts taxes -- and then measured them as a percentage of total personal income within each state.
Among the 50 states, New York's overall tax burden came in highest, at 13.12%. In fact, several Northeast states made the top 10. Maine and Vermont tied for third place with an 11.13% tax burden, while Connecticut and New Jersey came in at 10.91%, and 10.38%, respectively. Not surprisingly, Hawaii also topped the list, at 11.86%, while California came in eleventh, at 9.91%.
Alaska, meanwhile, came in all the way at the bottom, with a total tax burden of just 5.18%. Other runners-up for lowest tax burden included Delaware, at 5.91%, and Tennessee, at 6.56%.
Check out the following table to see how your state ranked:
TABLE BY AUTHOR. DATA SOURCE: WALLETHUB.COM.
Lowering your tax burden
While you may have a hard time escaping certain local taxes, if you feel that your overall tax burden is too high, there are steps you can take to lower it. One of the best ways to start is by contributing a portion of your earnings to a tax-advantaged retirement account, like a 401(k) plan or a traditional IRA.
Any money you allocate to one of these accounts goes in on a pre-tax basis, so if your salary is $50,000 a year, but you decide to put $5,000 into a 401(k), you'll only pay taxes on the remaining $45,000. Just as importantly, whatever amount you choose to save will serve the very essential purpose of helping you build a retirement nest egg.
Another easy way to lower your tax burden is to sign up for commuter benefits or a flexible spending account (FSA) through your employer. These programs allow you to allocate a certain amount of pre-tax dollars for eligible commuting and healthcare expenses.
For 2016, the tax-free allowable limits for commuter benefits are $255 per month for transit, and $255 for parking (for a combined total of $510), while the FSA limit is $2,550 for healthcare expenses. If your effective tax rate is 25% and you put $1,000 into an FSA, you'll save $250 on your taxes. The one caveat is that these programs operate on a use-it-or-lose-it basis, so make sure to set aside only as much money as you'll actually use.
Finally, if you're looking to fork over less of your income to taxes, it pays to read up on the various credits and deductions you might be eligible for. There are certain tax benefits available to homeowners and parents, so do your homework before filing your upcoming return.
Of course, if your state is among those with notoriously high taxes, you might consider relocating somewhere more wallet friendly. You might even consider Alaska, which not only boasts the country's lowest tax burden, but will actually pay you to live there. Though moving is certainly a significant expense, it's something to consider if you can command a similar salary in a state where the taxes aren't nearly as high.
The article Can You Guess the U.S. State With the Highest Taxes? (Hint: It's Not California.) originally appeared on Fool.com.
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