A state’s tax structure can play a pivotal role in making life more affordable for low-income individuals. We have ranked the 15 best states for those earning less, focusing on how their tax policies provide relief and support. This ranking is based on a survey conducted by WalletHub, which meticulously analyzed how state taxes affect low-income groups.
Alaska
Alaska offers the lowest tax burden at just 6.93% and boosts residents’ income with the Permanent Fund Dividend (PFD).
In 2022, the PFD was a record $3,284, partly due to an energy relief payment. There’s no state income tax, and the average property tax is reasonably low at $1,435.
This setup, along with moderate sales and excise taxes of 3.80%, makes Alaska financially attractive for low-income individuals, helping them maximize earnings and manage living costs effectively.
Montana
Montana’s overall tax burden for low-income individuals stands at 7.28%. The state has a low income tax rate of 1.32%, which helps maintain more income in the pockets of its residents.
The sales and excise tax rate is notably low at 2.28%, which reduces the day-to-day living costs. Although the property tax rate is slightly higher at 3.68%, the low income and sales taxes compensate, making Montana a financially wise option for those earning less.
Vermont
Vermont offers a unique tax scenario with a total burden of 7.30%. It has a high sales and excise tax rate of 4.99%, but this is balanced by a negative income tax rate of -0.58% due to refunds and credits available to low earners. The property tax rate at 2.89% is manageable. This setup benefits low-income individuals as it can lead to receiving money back during tax filings, which can offset other living expenses.
Minnesota
Minnesota positions itself with a tax burden of 7.35%. This state stands out due to its approach to income taxes, where low earners can experience a negative effective rate (-0.33%) thanks to various state credits. The sales and excise tax is higher at 5.67%, but the low property tax rate of 2.00% helps balance the overall expenses. This combination supports low-income residents by easing the tax impact on essential purchases and housing.
Delaware
Delaware, with a total tax burden of 7.67%, is another state favorable for low-income groups, primarily because it doesn’t levy sales tax. This absence reduces the overall cost of living significantly. The income tax rate is moderate at 1.89%, and property taxes are at 2.94%. The lack of sales tax in Delaware means everyday purchases are cheaper, which is a significant benefit for those managing tight budgets.
New Mexico
New Mexico presents an overall tax burden of 7.70%. The state has a unique configuration with a high sales and excise tax rate of 8.06%, but this is offset by a negative income tax rate of -3.03%. The property tax rate at 2.67% is also lower than in many other states. This negative income tax rate often results in refunds that can help compensate for the higher sales tax, providing a cushion for low-income earners.
Missouri
Missouri offers a balanced tax structure with a total burden of 7.93%. The state has moderate rates across the board—sales and excise taxes at 4.88%, property taxes at 2.77%, and a low income tax rate of 0.29%. This balance ensures that no single tax overly burdens low-income residents, making it easier to handle financial obligations without excessive strain.
New Hampshire
New Hampshire presents a mixed bag in terms of tax burden for low-income individuals, totaling 8.06%. It levies a sales and excise tax rate of 2.28%, which is relatively low compared to many other states, helping to keep day-to-day living costs down. The state also imposes an income tax of 0.43%, specifically on dividends and interest, which means regular wages are not taxed.
Michigan
Michigan shows an overall tax burden of 8.10%. It maintains a balanced approach to taxing, with a 5.54% rate for sales and excise taxes, a property tax rate of 2.08%, and an income tax rate of 0.48%. This combination ensures that while sales taxes are moderate, the lower property and income taxes help keep overall living costs manageable for low-income individuals, allowing them to allocate funds more freely across their necessary expenses.
District of Columbia
In the District of Columbia, the overall tax burden for low-income earners is 8.12%. It features a unique setup where the effective income tax can be negative (-1.10%), thanks to various credits targeted at low-income residents. The sales and excise taxes are moderate at 5.21%, and property taxes are somewhat higher at 4.01%. The tax credits in the capital offset higher living costs, providing financial relief that eases the burden of housing and daily expenses.
North Dakota
North Dakota’s tax burden sits at 8.64%, with a negligible income tax impact of just 0.01%, reflecting almost no deductions from earnings. Sales and excise taxes are higher at 6.18%, and property taxes are moderate at 2.46%. The low-income tax rate provides substantial financial relief for low-income earners, allowing them more liquidity for essential expenditures.
South Carolina
In South Carolina, the tax burden is about 8.67%. Sales and excise taxes are relatively moderate at 5.06%, coupled with a manageable property tax rate of 3.16% and an income tax rate of 0.44%. South Carolina also offers tax relief programs like the Homestead Exemption, which provides further financial relief for the elderly and disabled, helping reduce the overall cost of living.
Idaho
Idaho comes in with a total tax burden of 8.68%. The state maintains moderate sales and excise taxes at 4.87% and property taxes at 2.87%, with an income tax rate of 0.94%. Although the income tax is somewhat higher compared to some other states, the balanced levels of other taxes help mitigate the financial impact on low-income families. Idaho also boasts a low cost of living relative to many states, which stretches the value of every dollar earned here.
Maine
Maine features a tax burden of 8.68%. It has a negative income tax effect of -0.73% due to supportive tax credits for low-income earners. With sales and excise taxes at 5.17% and property taxes at 4.24%, Maine’s fiscal policies are aimed at reducing the tax load on necessary spending and housing. The state also provides additional support through heating assistance and health care subsidies that are beneficial for low-income residents.
Virginia
Virginia rounds out the list with a tax burden of 8.73%. The state levies a sales and excise tax of 4.56%, a property tax of 2.94%, and an income tax of 1.22%. Despite its higher income tax, Virginia’s tax structure remains competitive due to moderate property taxes and tax credits like the Earned Income Tax Credit (EITC), which significantly reduce state tax for qualifying low-income families, keeping housing affordable.
