The United States places a relatively high burden on long-term capital gains income (gains on assets held for more than one year). The top federal 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. rate is 20 percent. In addition, taxpayers with AGI over $200,000 ($250,000 married filing jointly) are subject to the 3.8 percent Net Investment Income Tax. Long-term capital gains are also subject to state and local income taxes. Combined, taxpayers can expect to face a marginal rate as high as 33 percent depending on their state of residency.
Displayed on the map below is 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. on capital gains income by state. The top marginal tax rate is the combined federal, state, and local rate paid by the taxpayer on capital gains income in the highest 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. . It varies nationally due to differences in tax regimes at the state and local levels.
At the state level, taxes on investment income vary anywhere from 0 to 13.3 percent. Three states (Alabama, Iowa, and Louisiana) allow taxpayers to deduct federal income tax paid from state taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. , and others states also treat capital gains income in a special manner. All of these special treatments, any additional tax levied at the state or local level, and the effect of the the prior average of 28.7 percent in 2014. However, taking into account each state’s respective capital gains income, the weighted average rate is 28.9 percent.
Breaking this down further, the states with the highest top marginal capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. Capital gains taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. rates are California (33 percent), New York (31.6 percent), Oregon (31.2 percent), and Minnesota (30.9 percent).
The lowest rate of 25 percent is shared among the nine states with no personal income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming).Share