The least cheery of all seasons, tax season, is upon us. As you file this year, Californians may be paying a very different amount than your neighbors in a state next door.
An updated analysis by MoneyGeek, a personal finance site, evaluates how “tax-friendly” each state is by evaluating the tax burden on the average citizen. States with low tax burdens earned an A, while those with the highest tax burden earned Fs.
California – despite have the highest top income tax rate in the country – didn’t do too poorly. The Golden State earned a B.
How is that possible? Let’s break it down.
MoneyGeek looked at how much a hypothetical family would pay in taxes if they were a married couple with one dependent, a gross income of $87,432 (the median national income), and a home worth about $375,000 (the median price of a new home in the U.S.). The lower the taxes on this hypothetical average family, the better the grade.
That hypothetical family of tax filers would pay an estimated $6,998 in taxes, or 8% of their income, in California.
Contrast California with Texas, where even though there’s no personal income tax, the average family would pay more in taxes. The main difference is property taxes, explained MoneyGeek data analyst Melody Kasulis.
“For a middle-class family in a home at the national median value, California residents would pay $2,847 in state property tax and Texas residents of that same profile would pay $6,744,” explained Kasulis. “California’s low state property tax rate of 0.76% offsets its high personal income tax rate and allows it to earn a B grade. Texas having the 7th highest property tax rate in the country at 1.8% is the most significant factor bringing it down to a C grade.”
See how California compares to other states in the map below:
MoneyGeek’s system of grading states on tax burden only holds true for that hypothetical family earning about $87,000 a year with a $375,000 house. A family who just bought a $1 million house in California or who earns $500,000 would end up paying more.