Despite cost of living challenges, the number of high-income households in America continues to grow. In 2021, there were 8.68 million tax returns filed with annual incomes of more than $200,000, up from 8.57 million the previous year. The migration of these high-income households can have a significant impact on the state's tax base and finances.
SmartAsset set out to identify the states where the most high-income earners are moving. To do this, we looked at the inflows and outflows of taxpayers who earned at least $200,000 in each state between 2020 and 2021.
Main findings
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Florida and Texas will gain the most high-income earners, while California and New York will lose the most. Florida saw an increase of 27,500 high-income filers even after accounting for the outflow, and Texas had the second-highest increase of 9,000. Meanwhile, California and New York lost more high-income filers than any other state, at more than 45,000 and 31,000, respectively. California's net exodus of high-income earners accelerated significantly from the previous year's exodus (40%).
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The number of high-income earners in these northeastern states is decreasing year by year. New Jersey, Massachusetts, New York and Pennsylvania all saw net outflows of households earning more than $200,000. Still, there are only three states where more than 10% of tax filers have annual incomes above $200,000: Massachusetts, New Jersey, and Connecticut.
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The $200,000 tax base is rapidly increasing in Idaho, Florida, and Montana. The share of high-income households in each state's total population increased the most in these three states in 2021.
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Seven of the top 20 states are located in the Southeast. High-income households are increasing in the Southeast, including states such as Florida, North Carolina, South Carolina, Tennessee, Georgia, Alabama, and Arkansas.
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High-income earners are leaving Washington, D.C., at a rapid pace. The capital lost a net total of 2,009 high-income households from 2020 to 2021. High-income individuals have left Washington, D.C., at a faster rate than any other state as a percentage of all filers.
States that capture high-income households
As in last year's study, no state saw a larger influx of high-income households than Florida. In the Sunshine State, the number of households with annual incomes of $200,000 or more increased by 40,134, but only 12,567 households decreased. Florida is one of nine states that doesn't levy an income tax, adding a net total of 27,567 high-income taxpayers.
Texas had the second-highest net inflow of high-income people in 2021, at 9,008, but that increase was only one-third of Florida's net inflow. In total, the number of Texas households earning at least $200,000 decreased by 13,743 but increased by 22,751.
North Carolina (5,446), Arizona (4,563) and South Carolina (4,510) round out the top five states with the highest net inflow of high-income taxpayers, followed by Tennessee (3,917) and Nevada (2,785). , followed by Idaho (2,315 people).
The role of state income taxes in these trends cannot be overlooked. Of the 10 states with the highest net inflows of high-income earners in 2021, four do not impose state income taxes. Meanwhile, New Hampshire, which has the 11th largest net inflow of taxpayers making more than $200,000, does not tax earned income but taxes interest and dividends.
States losing high-income households
California's exodus of high-income households accelerated in 2021, with the state recording a net loss of 27,341 taxpayers with annual incomes of 200,000 or more. This is a 42% increase from 2020, when the Golden State lost a net total of 19,229 high-income earners.
California also had a net loss of nearly 8,000 more people than New York, and had the second-highest net outmigration of high-income people in the nation (19,795).
Illinois, Massachusetts, and New Jersey ranked third, fourth, and fifth for net outflows of high-income households in 2021, followed by Virginia, Maryland, and Minnesota.
Although these states had the highest net outflow of high-income households in 2021, they still have the highest proportion of high-income households in the country. In fact, at least 7.2% of the tax base in each of these states earns more than $200,000 annually.
Data and methodology
To determine where high-income households are moving, we looked at data from all 50 states, not just the District of Columbia. We defined high-income households as those whose adjusted gross income was $200,000 or more. More specifically, we took a closer look at her two metrics:
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An influx of tax filers with incomes of $200,000 or more. This is the number of filers who moved to a state and had an adjusted gross income of at least $200,000. The data is from his IRS and is from 2020-2021.
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Outflow of taxpayers filing taxes of $200,000 or more. This is the number of filers who have an adjusted gross income of at least $200,000 and have moved out of state. The data is from his IRS and is from 2020-2021.
To rank states, we determined each state's net inflow of high-income households. This is the inflow minus the outflow. We then ranked the states in descending order according to their net inflows.
Tips for high income households
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Hire a financial advisor. Finding a financial advisor doesn't have to be difficult. SmartAsset's free tool matches you with up to three vetted financial advisors serving your area. You can also have a free introductory call with an advisor to determine which advisor is right for you. If you're ready to find an advisor who can help you reach your financial goals, get started today.
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Consider alternative investments. If you have a high income, you can qualify as an accredited investor. You must have a net worth of at least $1 million (excluding your home) and an income of at least $200,000 in each of the past two years ($300,000 for married couples). Accredited investors have access to different types of alternative investments that can yield higher returns, such as hedge funds and private equity.
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Use a backdoor Roth IRA. If your income is $153,000 and your filing status is single ($228,000 if married), you are not eligible to contribute to a Roth IRA. However, you can use a technique known as a backdoor Roth IRA by converting your traditional IRA to the Roth version. You have to pay taxes on the money, but the money grows tax-free from there.
Have questions about our research? Contact us at press@smartasset.com.
Photo credit: ©iStock/Liudmila Chernetska
The post “Where High-Income People Are Moving – 2023 Survey” was first published on SmartReads by SmartAsset.
