The Golden State has lost its luster for its wealthiest residents.
According to the U.S. Census Bureau, California's population in 2023 will fall below 39 million people, the lowest since 2015. The state lost 75,423 residents last year, continuing a dramatic trend that began with the onset of the 2020 coronavirus disease (COVID-19) pandemic, according to the data.
That's not the concern some According to the Los Angeles Times, the state has experienced a lopsided population exodus for decades, with people leaving. who I'm leaving.
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An analysis of the nearly 750,000 people who have said goodbye to California over the past three years reveals that thousands more high-income, highly educated workers have left the Golden State than moved there. Became.
As Joel Kotkin, a researcher at Chapman University, told the Los Angeles Times, this is a problem because “people who leave the country are taking their taxes with them.”
It's no secret that California has the highest state income taxes in the country. For 10 years, the top income tax rate remained at 13.3%, but as of January 1, the top tax rate for earners over $1 million has increased to an astronomical 14.4%.
Rich people: “We are leaving.”
The new state tax rate of 14.4% is far higher than other prominent high-tax states. Hawaii's income tax bracket is up to 11%, but New Yorkers earning more than $25 million are taxed at a rate of 10.5%.
Ultra-wealthy Californians, or the top 1 percent, typically pay 40 to 50 percent of the state's personal income tax revenue. And some people are clearly tired of propping up state finances.
“I have two to five clients a month who call me and say, 'I'm quitting,'” estate planning lawyer Todd Littman told Sky News. “They have $1 million to $2 million in an IRA and they say, 'When I retire and start withdrawing that IRA, I'm going to pay 13% state income tax and I don't want to pay that.' .That.’ So they leave for that reason.”
It's not just wealthy residents who are leaving. Businesses are also leaving the state, again due to high taxes, punitive regulations, and high labor, utility, and energy costs, among other things.
The significant income tax loss is highly problematic for California, which is facing a record $68 billion budget deficit, largely due to an unprecedented drop in tax revenue.
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Top 1% or less
For many wealthy people, the 14.4% income tax rate is more of a nuisance than a financial hurdle. The same cannot be said for several tax brackets below.
The average gross income of taxpayers who moved from California to other states in the 2020 and 2021 tax years was about $137,000, according to IRS migration and personal income data.
These individuals would then fall into California's largest state income tax bracket (9.3%): single filers with annual incomes of $61,215 to $312,686, or joint filers with annual incomes of $122,429 to $625,372. Applies to married couples filing a tax return.
According to SmartAsset's tax calculator, if you earned $137,000 in California last year, your estimated state income tax in 2023 will be $9,896. And if you reduce your taxable income by capping 401(k) contributions at $22,500 (2023 total) and IRA contributions at $7,500 (for ages 50 and older), your estimated state income tax will be approximately That's $6,827.
This is on top of federal income tax, which for a household income of $137,000 is about 22% to 24%, plus about 0.71% property tax and at least 7.25% sales tax. This is a tax that must be paid every year, and as California battles inflation and housing costs soar to record highs, the impact of COVID-19 has hit Californians even harder. There is.
If not California, then where?
Some of the hotspots for people fleeing California are Texas, Florida, Arizona, Tennessee, and Nevada. What unites these states? They're all very tax-friendly.
Texas and Florida had the highest population growth in 2023, increasing by 473,453 and 365,205 people, respectively, according to census data. Both states have no personal income tax, potentially saving the wealthy thousands of dollars each year.
These tax-friendly states are especially attractive to retirees who don't want the taxman to take away a significant portion of their retirement savings.
If you're tired of paying high income taxes and are considering moving to the state, it's important to remember that personal income tax rates are only one part of the tax picture.
Individual state personal income tax brackets and available deductions, exemptions, and credits must be considered. Also keep in mind that property and sales taxes can impact affordability in your state.
For example, Texas, the most popular state among Californians, has no state income tax, but its effective property tax rate of 1.68% is one of the highest in the nation. Similarly, tax-friendly Tennessee has the highest sales tax in the country at 9.548%.
Of course, tax rates aren't the only factor driving Californians to leave the Golden State, but they are a big factor, and the resulting economic downturn could negatively impact those who choose to stay. There is sex.
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This article is for information only and should not be construed as advice. PROVIDED WITHOUT WARRANTY OF ANY KIND.
