How 'tax friendly' is Texas?
Texans may be paying a very different amount this tax season than their neighbors in a state next door.
(NEXSTAR) – The least cheery of all seasons, tax season, is upon us. As you file this year, Texans may be paying a very different amount than their 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.
Texas – despite its lack of personal income tax – didn't take a top mark. The state earned a mediocre C grade.
How is that possible? Let's break it down.
To conduct the study, 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). The lower the taxes on this hypothetical average family, the better the grade.
That hypothetical family of tax filers would pay an estimated $8,554 in taxes, or 9.8% of their income, in Texas.
The main thing driving up Texas' tax burden is property taxes, explained MoneyGeek data analyst Melody Kasulis.
Contrast Texas with California, which has the nation's top personal income tax rate, but still managed to score a B.
"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 Texas 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 New York would probably be paying a lot more in taxes, while a single person earning $30,000 in Oklahoma would pay less.