As tax season is upon us, Americans are gathering their financial records in order to file their tax returns. Perhaps not the most exciting holiday, the deadline for filing is just more than a month away for most taxpayers, April 15.
A person’s income and state of residence are huge in determining in how much tax they pay to the federal government. A WalletHub study “identified the best states where people in different income brackets spend the most and least on sales and excise taxes, property taxes and income taxes.”
The study focused on the amount of a person’s earnings that goes toward fulfilling different tax requirements rather than actual tax rates, because the impact of taxes varies among Americans.
“Many taxes — including property taxes, sales taxes, and some state and local taxes, are regressive. That means they take more money out of the pockets of Americans in the lower- and middle-income brackets than from wealthier families,” the study said. “Nationally, people in the least-wealthy fifth of the population pay around 11.4% of their income in state taxes, while the richest one-percenters pay 7.2%.”
Best state for higher-income individuals: Alaska.
Worst state for higher-income individuals: New York.
Best state for middle-income individuals: Alaska.
Worst state for middle-income individuals: Hawaii.
Best state for lower-income individuals: Alaska.
Worst state for lower-income individuals: Illinois.
In the WalletHub study, the report ranked Utah as the 24th best state for lower-income individuals, 32nd for middle-income individuals and 35th for higher-income individuals.
“The wealthy and less fortunate are both subject to taxes, but unfortunately people who are not as well off can end up getting hit harder due to the regressive nature of many taxes,” WalletHub analyst Cassandra Happe said, per the report. “Living in a state where your income bracket isn’t squeezed as hard during tax season can save you a lot of money. A few states even cut costs dramatically by not charging income tax altogether.”
Utah’s tax rate perspective
Utah is no exception when it comes to having a unique tax system. According to the Tax Foundation, the Beehive State has a flat individual income and corporate income tax rate of 4.85%, a state sales tax rate of 6.10%, a 2.95% max local sales tax rate and a combined local and state tax rate of 7.19%.
The Tax Foundation also ranked Utah as the eighth best business tax climate in the country in 2024.
In a report on individual income tax, the Kem C. Gardner Policy Institute at the University of Utah said it represents Utah’s biggest and most fluctuating primary source of tax revenue.
“Utah faces relentless growth, changing cost structures, structural economic changes, and funding tradeoffs,” chief economist at the Gardner Institute and lead author of the report, Phil Dean, said. “These changes require constant adaptation, innovation, and realignment of Utah’s fiscal systems. In Utah’s tax portfolio, the income tax is notable for strong growth paired with downside volatility, constitutional constraints on use, and the best ability among major taxes to fine tune the fairness of Utah’s overall tax system.”
The “2023 How Utah Compares Report” by the Utah Taxpayer Association on how Utah compares to other states regarding taxes noted that relative to the national average, residents in Utah give a more significant share of their personal income to all taxes except property tax.
Compared to neighboring states, “Only New Mexico pays more in income taxes, and only Arizona pays more in sales tax. Several neighboring states pay less in property tax than Utah. Overall tax burden is an important consideration for individuals and businesses looking to relocate. For example, Colorado‘s Taxpayer Bill of Rights and Arizona‘s revenue triggered income tax cuts make these states competitors for investment and migration,” per the report.
“In order to grow and compete, it is important for Utah to lower the burden placed on taxpayers,” the report added.