The IRS recently released thelatest installmentof tax migration statistics, comparing 2019 with 2020. As with past installments of this data, it clearly shows that taxpayers are fleeing high tax states for greener pastures.
Last fall, NTUF examinedtax migration statisticsfrom the perspective of state and local tax (SALT) deductions, showcasing how, with capped SALT deduction, taxpayers in high-tax states experience more of the bite of their state’s tax policies.
But while that year’s dataset was notable for representing the first year of tax data in the aftermath of capping of the SALT deduction, the new data represents the last full year before the pandemic hit.This report represents data frombeforethe pandemic which pushed a sizable number of American workers remote, allowing them greater freedom of movement.
In the months following the beginning of the pandemic, the scale of remote work grew rapidly, with the percentage of American workers working from home at least 20 days a monthjumping from 5 percent in 2019 to 22 percent in the summer of 2020. Though remote work hassince cooled off somewhat, it is nonetheless safe to say that the pandemic has increased the flexibility of many workers’ work arrangements. After all, even for workers who have since returned to in-person work, remote work is far more easily attainable should they wish it.
These facts make the enormous net shifts in taxpayers and income from high-tax to low-tax states described below even more stark, as they make clear that a state’s tax rates are an important factor in residency decisions for many taxpayers. As work flexibility increases, so too will taxpayers’ ability to decide where they want to live — and the greater the pressure on states will be to make their tax codes competitive.
Taxes Matter to Taxpayers
IRS migration data shows how many taxpayers move to and from each state between two given years of tax returns, examining the inflow and outflow of the number of tax returns, individuals, and Adjusted Gross Income (AGI). The data represents net changes in domestic migration statistics, excluding immigration and emigration to and from different countries.
Tables 1 and 2 below list the top ten states losing and gaining taxpayers and income, respectively. They also include each state’s ranking in Tax Foundation’s 2019state-local tax burdens report, with the first-ranked state, New York, being the state with the highest state-local tax burden in the country.
This dataset makes clear that, as a general principle, taxpayers prefer to move to states with lower tax burdens and away from states with higher tax burdens. Right from the start, the three states losing the most taxpayers and income–New York, California, and Illinois–are the three largest high-tax states. The top two states gaining taxpayers and income, Florida and Texas, are the two largest low-tax states (Arizona, though it does not have this reputation to the same extent, still enjoys a below-average tax burden).
The top ten states gaining taxpayers acquired a net total of 321,000 households and $53 billion in AGI. On the other hand, the top ten states losing taxpayer dollars lost a net total of nearly 367,000 households and $58 billion in AGI.
All told, the top ten states losing the most income had a weighted average of about the 11th-highest tax burden in the country that year, according to Tax Foundation statistics. The top ten states gaining the most income, on the other hand, had a weighted average of about the 38th-highest (or the 12th-lowest) tax burden in the country.
The contrast is just as clear when looking at the top ten states with the greatest tax burdens versus the ten states with the lowest tax burdens. The ten states with the lowest tax burdens gained a net total of 228,000 households and $39.4 billion in AGI, while the ten states with the highest tax burdens lost a net total of 332,000 households and $50.6 billion in AGI as demonstrated by Tables 3 and 4 below.
Additionally, states with distinct advantages to their tax systems tend to gain taxpayers. Florida, Nevada, Texas, and Tennessee all have no individual income tax and all appear in the top 10 states gaining taxpayers. Meanwhile, every state in the top ten tax migration losers levies an individual income or sales tax.
Table 5 shows that, adjusting for population sizes, other states without individual income taxes like Nevada, New Hampshire, and Wyoming join the top ten winners of tax migration. States with no sales taxes are all among the smallest states in the country, but adjusting for population size, three of the five states without a sales tax appear in the top ten winners: Montana, New Hampshire, and Delaware. Another, Alaska, actually appears in the top ten losers on a per capita basis, but while Alaska has no statewide sales tax, local jurisdictions do levy sales taxes.
The Impact of Other Taxes
Among the states losing taxpayers, Ohio and Pennsylvania have lower combined state-local tax burdens (10.3 percent and 10.4 percent respectively) than other states, but still lost over $1 billion each in AGI.High property taxes strongly suggest a reason for this loss. The average property tax for these top ten states losing taxpayers is 1.28 percent. Ohio’s property tax averages 1.52 percent, higher than most states. According to the Tax Foundation’s property tax rankings, Pennsylvania also has a high property tax of 1.43 percent, ranking 16th out of 50 in 2019.Illinois and New Jersey’s inclusion in the top five tax migration losers also supports this notion, with the states having the highest average property tax rates in the country at 2.13 and 1.97 percent, respectively.
Just as taxpayers are fleeing states with high property taxes, so too are they flocking towards states with low property tax rates.The average property tax for the group of states gaining taxpayers is 0.73 percent as demonstrated in Table 7 below. This is 55 percent lower than the top ten states losing taxpayers. Colorado’s average property tax in 2019 was 0.52 percent, while Illinois’s average property tax is almost four times higher at 1.97 percent. Relative to Illinois’ average of $4,400 paid in property taxes, the average Coloradan pays a mere $1,756,a net savings of $2,644 annually in property taxes.
However, low property taxes are not the only possibility for tax migration to these 10 states. According to the IRS data, Texas gained over $6 billion in net AGI alone while still having one of the worst average property taxes in the country at 1.6 percent. At first place on the list, Florida also has a fairly significant average property tax of 0.86 percent, yet the Sunshine State gained almost $24 billion in AGI income alone, four times that of Texas. But Florida and Texas balance high property tax rates with no individual income tax. The average individual income tax rate for the ten states gaining the most AGI from tax migration is more than two points higher than the states losing taxpayers. As illustrated by Tables 6 and 7 below, the ten states gaining the most income from tax migration have an average tax rate of 4.03 percent, while the ten states losing the most income have an average income tax of 7.52 percent.
Migration Data in the Context of State Actions
These trends are important to state policymakers. While it should give cause to examine the need for competitiveness in their tax codes, many high-tax states have instead responded by seeking to erode the general principle that tax obligations are based on the taxpayer’s physical location. In recent years, NTUF has published reports examining how states have sought, with varying degrees of success, to imposeincome,sales, andbusinesstax obligations (as well asregulationsandother taxes) on out-of-state individuals and businesses.
Our past analysis on these interstate commerce issues has focused on the great burden that overlapping tax and regulatory systems places upon tax compliance. However, it is worth noting that should states succeed in further blurring the lines between tax jurisdictions, Americans’ ability to “vote with their feet” will become greatly diminished. One of the hallmark characteristics of the federalist system is the ability for taxpayers to choose what state policies they want to live under by choosing what state they want to reside in. That taxpayer freedom at the state and local level exists only so long as states’ tax authority ends where their borders do.
The IRS tax migration data showcases the sharp distinctions between states losing and gaining taxpayers. States gaining taxpayers tend to place less of an emphasis on draining the wealth of their taxpayers into state coffers, instead allowing taxpayers more freedom with what they do with their own money. Taxes are an important factor that taxpayers consider when deciding where to live. If the states losing taxpayer dollars were to make their tax rates more competitive, then these states would not be losing taxpayers at their current rate. States would do well to appraise their tax codes and implement reforms that signal a willingness to respect taxpayers’ money instead of burdening them with significantly higher rates.
This dataset covers changes in residency between individual income tax returns the IRS received in 2019 versus returns it received in 2020. For the vast majority of returns, returns are received in the year after the tax year they correspond to — in other words, returns received in 2019 correspond to tax year 2018, and returns received in 2020 correspond to tax year 2019.
Overall, states with lower taxes and sound tax structures experienced stronger inbound migration than states with higher taxes and more burdensome structures.Who pays a larger percentage of their income to taxes? ›
1 By contrast, lower-income groups owe a greater portion of their earnings for payroll and excise taxes than those who are better off. In fact, taxpayers whose incomes are in the bottom 80 percent of all incomes pay, on average, more in payroll taxes than in income taxes.What states have no state income tax? ›
- South Dakota.
The United States uses a progressive tax system, meaning taxpayers pay more incremental tax as they earn more income.Does immigration status affect taxes? ›
Residency Under U.S. Tax Law
An individual who obtains a green card is treated as a lawful permanent resident and is considered a U.S. tax resident for U.S. income tax purposes. For assistance in determining whether you are a U.S. tax resident or nonresident please refer to Determining Alien Tax Status.
If you permanently moved to another state, you will be required to file two state returns: one for each state you lived in during the tax year (assuming both states charge income tax).Who pays most taxes in USA? ›
The highest-earning Americans pay the most in combined federal, state and local taxes, the Tax Foundation noted. As a group, the top quintile — those earning $130,001 or more annually — paid $3.23 trillion in taxes, compared with $142 billion for the bottom quintile, or those earning less than $25,000.What state in America has the highest tax rate? ›
- New York - 12.47%
- Hawaii - 12.31%
- Maine - 11.14%
- Vermont - 10.28%
- Connecticut - 9.83%
- New Jersey - 9.76%
- Maryland - 9.44%
- Minnesota - 9.41%
An estimated 72.5 million households -- or 40% of total households -- will pay no federal income taxes for tax year 2022, according to an analysis from the Tax Policy Center.What states do not tax your Social Security? ›
- New Hampshire.
- South Dakota.
1. Alaska. Alaska is the most tax-friendly state for retirees because it has no state income tax or tax on Social Security. And its sales tax rate is the fourth lowest on our list - fifth lowest in the U.S. But keep this in mind: The cost of living in Alaska is higher than in most states.Which U.S. state has lowest taxes? ›
In 2020, the average American contributed 8.9% percent of their income in state taxes. Alaska had the lowest average overall tax burden – measured as total individual taxes paid divided by total personal income – at 5.4%, followed by Tennessee (6.3%), New Hampshire (6.4%), Wyoming (6.6%) and Florida (6.7%).What country has the lowest tax rate in the world? ›
Among the countries with the lowest tax rates in the world are Malta, Cyprus, Andorra, Montenegro and Singapore. Aside from zero income tax, in Antigua and Barbuda, individuals are also free from paying taxes on wealth, capital gains, and inheritance.Is Social Security part of federal taxes? ›
If you're employed, you may notice a line on your pay stub for Social Security, FICA, or OASDI. These all relate to the same Social Security Tax you must pay and are separate from your federal income tax.What percent is Social Security and Medicare? ›
NOTE: The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below). The Medicare portion (HI) is 1.45% on all earnings.What is tax proof for immigration? ›
1) USCIS Form I-864A 2) Previous year's Federal Income Tax Returns 3) Proof of income (either an IRS Tax Return Transcript or IRS Form W2s) 4) Proof of their legal status in the United States (i.e. a copy of their passport, permanent resident card, or naturalization certificate).What happens if a permanent resident does not file taxes? ›
Under immigration law, a permanent resident who is required to file a tax return as a resident and fails to do so, or who files a nonresident alien tax form, may be considered to have abandoned his or her status and may lose permanent resident status.Do U.S. immigrants pay taxes? ›
It's a surprising fact that's often overlooked in the immigration debate. Undocumented immigrants pay billions of dollars in federal taxes annually, between tax returns filed and taxes deducted from paychecks, experts estimate.Can you be taxed by two states on the same income? ›
You may have to file more than one state income tax return if you have income from, or business interests in, other states. Here are some examples: You are an S corporation shareholder and the corporation does most of its business in a state other than the state where you live.What if I move but didn't change my address taxes? ›
If you file your taxes and don't include your new address, you can notify the IRS of your address change by filling out Form 8822.
Where do I file taxes if I've moved? In most cases, you must file a tax return in any state where you resided during the year. If you relocate to another state and earn income during the year, you'll have to file a tax return in both your old and new state.Who pays the most tax in the world? ›
- Japan - 55.97%
- Denmark - 55.90%
- Austria - 55.00%
- Sweden - 52.90%
- Aruba - 52.00%
- Belgium - 50.00% (tie)
- Israel - 50.00% (tie)
- Slovenia - 50.00% (tie)
In 2020, the latest year with available data, the top 1 percent of income earners earned 22 percent of all income and paid 42 percent of all federal income taxes – more than the bottom 90 percent combined (37 percent).What percent of Americans pay taxes? ›
In total, about 59.9 percent of U.S. households paid income tax in 2022. The remaining 40.1 percent of households paid no individual income tax.What states tax Social Security? ›
For the 2022 tax year, 11 states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah and Vermont. All other states and the District of Columbia do not tax the payments.Do Native Americans pay taxes? ›
Members of a federally recognized Indian tribe are subject to federal income and employment tax and the provisions of the Internal Revenue Code (IRC), like other United States citizens. Determinations on taxability must be based on a review of the IRC, treaties and case law.How can I pay no taxes legally? ›
- Take full advantage of 401(k) or 403(b) plans. ...
- Move to a tax-free state. ...
- Contribute to a health savings account. ...
- Itemize your deductions. ...
- Use tax-loss harvesting.
To be exempt from withholding, both of the following must be true: You owed no federal income tax in the prior tax year, and. You expect to owe no federal income tax in the current tax year.At what age is Social Security no longer taxed? ›
Social Security benefits may or may not be taxed after 62, depending in large part on other income earned. Those only receiving Social Security benefits do not have to pay federal income taxes.Can Social Security check your bank account? ›
The Social Security Administration can only check your bank accounts if you have allowed them to do so. For those receiving Supplemental Security Income (SSI), the SSA can check your bank account because they were given permission.
As long as you continue to work, even if you are receiving benefits, you will continue to pay Social Security taxes on your earnings. However, we will check your record every year to see whether the additional earnings you had will increase your monthly benefit.How do I get the $16728 Social Security bonus? ›
To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.What state does not tax retirement? ›
States That Don't Tax Retirement Income
Eight states have no state income tax. Those eight – Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming – don't tax wages, salaries, dividends, interest or any sort of income.
Rather, Alabama is the most affordable state to retire in, according to WalletHub's “2023 Best States to Retire.” The analysis compared all 50 states across three key categories: health care, quality of life and affordability.Where is the best place to live for tax purposes? ›
|State||Tax as % of Income|
- Honolulu, HI, with a .27% effective tax rate;
- Montogmery, AL, with a .35% effective tax rate;
- Birmingham, AL, with a .37% effective tax rate;
- Cheyenne, WY, with a .54% effective tax rate; and.
- Denver, CO, with a . 55% effective tax rate.
Including county and city sales taxes, the highest total sales tax is in Arab, Alabama, 13.50%. Sales tax is calculated by multiplying the purchase price by the applicable tax rate. The seller collects it at the time of the sale. Use tax is self-assessed by a buyer who has not paid sales tax on a taxable purchase.Which country is best to not pay taxes? ›
Currently, Oman is a tax-free nation, as there is no taxation on personal income. Moreover, there are no taxes on income from property, wealth, capital gains or death. However, the Oman Government is currently evaluating a Personal Income Tax Regime as a part of its 2020-2024 Medium Term Fiscal Plan.Which country has no corporate tax? ›
Bermuda and the Cayman Islands also offer similar international and foreign investing advantages with their 0% corporate tax rate. Bermuda also doesn't tax income, dividends, or capital gains. The same applies to the Cayman Islands.How much money can a 70 year old make without paying taxes? ›
To be taxed on your Social Security benefits you need to have a total gross income of at least $25,000, or $32,000 for couples who file jointly. If you earn more than that – at least $34,000 for an individual or $44,000 for a couple – you will see up to 85% of your benefits payments subject to tax.
Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age.What changes are coming to Social Security in 2023? ›
Social Security recipients will get an 8.7% raise for 2023, compared with the 5.9% increase that beneficiaries received in 2022. Maximum earnings subject to the Social Security tax also went up, from $147,000 to $160,200.What is the average Social Security check? ›
If you hit full retirement age at 66 then the average monthly check you will receive is $3,627 per month.Is it better to take Social Security at 62 or 67? ›
You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.How do taxes work for immigrants? ›
Immigrants that are authorized to work in the United States must pay the same state and federal income taxes that citizens do. The Internal Revenue Service (IRS) defines residency in a different way than U.S. immigration law. For tax purposes, workers are categorized as either resident or nonresident aliens.Do state taxes have a negligible impact on Americans interstate moves? ›
Differences in tax levels among states have little to no effect on whether and where people move, contrary to claims by some conservative economists and elected officials.How are income taxes impacted if I relocate? ›
Where do I file taxes if I've moved? In most cases, you must file a tax return in any state where you resided during the year. If you relocate to another state and earn income during the year, you'll have to file a tax return in both your old and new state.Does income affect migration? ›
A major reason why people migrate is income differences between origin and destination countries. Richer countries attract more immigrants, especially from countries with younger populations.What is the US tax rate for immigrants? ›
This income is taxed at a flat 30% rate unless a tax treaty specifies a lower rate. Nonresident aliens must file and pay any tax due using Form 1040NR, U.S. Nonresident Alien Income Tax Return.How many years of taxes does immigration take? ›
How Many Years of Tax Returns Are Required? For Form I-864, the U.S government requires proof of tax filing for the most recent filing year (typically the previous calendar year). Note that the the sponsor (and co-sponsor if any) has the option to provide tax filings from the past 3 years.
In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you're considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.How do states survive without state income tax? ›
States without an income tax often make up for the lack of these revenues by raising various other taxes, including property taxes, sales taxes, and fuel taxes. These can add up so that you're paying more in overall taxation than you might have in a state that does tax your income at a reasonable rate.How do states survive without income tax? ›
With no income tax dollars coming in, these states must get that revenue from other sources. Typically, this translates to higher sales taxes, property taxes and/or gasoline taxes. For example, homeowners in New Hampshire and Texas pay some of the highest property taxes in the country, at 1.89% and 1.6%.Where is the best place to move for taxes? ›
Alaska had the lowest tax burden in the U.S. in 2021, though it was also one of the least affordable states to live in.What happens if you move before filing taxes? ›
If you change your address before filing your return, enter your new address on your return when you file. When your return is processed, we'll update our records. Be sure to also notify your return preparer.Does your address matter when filing taxes? ›
Even if you are filing a prior year tax return, and your address was different during the tax year which that return concerns, you must include your current address, so that the IRS can contact you regarding that tax return in the future. The IRS recommends contacting them every time you have a change of address.What are the 5 positive effects of migration? ›
- Workers will work for low wages and are prepared to do jobs that local people do not want.
- Increased cultural diversity.
- Skills gaps are filled.
- Boost to the local economy.
- Government tax revenues increase.
Migration is a global phenomenon caused not only by economic factors, but also by social, political, cultural, environmental, health, education and transportation factors.Who benefits from migration? ›
Migration boosts the working-age population. Migrants arrive with skills and contribute to human capital development of receiving countries. Migrants also contribute to technological progress.