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High-Income Taxpayers Could Face a Top Marginal Tax Rate over 50 percent this Tax Season

2 min readBy: Kyle Pomerleau

Last year, with the passage of Taxpayer Relief Act of 2012, a number of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. changes were enacted. In addition, a few Obamacare taxes went into force. Although most taxpayers and Americans will be affected by these changes over time, most of the tax changes for this filing season target the highest income earners.

The most notable changes for taxpayers this filing season:

  • A new 39.6 percent income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. for those making over $400,000
  • Phase-out of the personal exemption and itemized deductions for those making more than $250,000
  • A new 0.9 percent tax on Medicare wages for those making more than $200,000

Add these new taxes to state income taxes, such as California’s 13.3 percent income tax rate on those making $1 million or more, and the top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. faced by high-income earners can be over 50 percent. A marginal tax rate is the rate your next dollar of income over a certain level is taxed, not to be confused with an average tax rateThe average tax rate is the total tax paid divided by taxable income. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. , which is your total taxes paid over your total income.

Californians face the highest top marginal tax rate on wage income at 51.9 percent, followed by Hawaii (50.5 percent), and New York (50.3 percent). Even high income earners in states with no income tax such as New Hampshire, Texas, and Nevada face top marginal income tax rates over 42 percent. The average across all states is about 48 percent.

Update: Minnesota increased its top income tax rate (7.9 percent to 9.85 percent) in 2013 which retroactively applied to January 1, 2013. The new top marginal income tax rate for Minnesota taxpayers is 49.8 percent, the fifth highest in the nation.

Top Marginal Income Tax Rate on Wage Income, 2013
Rank State Rate
1 California 51.90%
2 Hawaii 50.50%
3 New York 50.30%
4 Oregon 49.90%
5 Minnesota 49.80%
6 New Jersey 49.30%
6 Vermont 49.30%
8 Maryland 49.20%
9 Maine 49.00%
10 North Carolina 48.60%
10 Wisconsin 48.60%
12 Ohio 48.50%
13 Idaho 48.40%
13 Kentucky 48.40%
15 Arkansas 48.10%
15 Montana 48.10%
15 South Carolina 48.10%
18 Delaware 48.00%
18 Nebraska 48.00%
20 Connecticut 47.90%
21 West Virginia 47.80%
22 Missouri 47.60%
23 Georgia 47.50%
23 Rhode Island 47.50%
25 Iowa 47.40%
25 Virginia 47.40%
27 Massachusetts 47.10%
27 Oklahoma 47.10%
29 Illinois 46.90%
29 Kansas 46.90%
29 Mississippi 46.90%
29 New Mexico 46.90%
29 Utah 46.90%
34 Arizona 46.70%
34 Colorado 46.70%
34 Indiana 46.70%
34 Pennsylvania 46.70%
38 Michigan 46.60%
39 North Dakota 46.30%
40 Louisiana 46.10%
41 Alabama 45.70%
42 Alaska 42.80%
42 Florida 42.80%
42 Nevada 42.80%
42 New Hampshire 42.80%
42 South Dakota 42.80%
42 Tennessee 42.80%
42 Texas 42.80%
42 Washington 42.80%
42 Wyoming 42.80%
Washington D.C. 49.30%
U.S. Average 47.90%

Source: Gerald Prante and Austin John, “Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Tax Law (as enacted in ATRA),” February 3, 2013.