California is not the worst for taxes!

The new State Tax ratings from Tax Foundation are out and once again California ranks as one of the highest taxed states in the nation.  But here is some good news – it is not the worst!  This analysis factors in things like income tax, sales tax, property tax, inheritance tax, and other policies. California continues to rank just below New York and New Jersey as the highest taxed states in the nation. California is plagued with everything from the highest income tax bracket to the some of the highest sales taxes in the country. Below is a quick breakdown of the taxes that Californians pay

Income Tax

California boasts one of the most progressive tax brackets meaning the lowest earners pay in the range of 1% on income, but it quickly rises to as high as 13.3% for top earners. This is easily the highest rate in the country and is of course in combination with federal income taxes as well. Other than Social Security, there are no exemptions or reductions for retirees in lowering their income taxes. Only railroad retirement benefits (a quirk for sure) are exempted.

Property Tax

While California’s Proposition 13 limits property taxes to 1% of the assessed value of the property, and limits annual increases to the assessed value, the high property values in California result in high taxes anyway.  According to Tax Foundation research, Californians pay an average of 2.78% of their Personal Income in property tax.  This compares unfavorably to neighboring states with much lower income tax rates and still ranks among the highest in the nation.

State Sales Tax

The state level for sales tax is a whopping 7.5% across the board with the ability for counties to add their own sales tax in addition beyond that. This can be as much as 2.5% in addition making the max a 10% sales tax on purchases. The average is about 8.5% statewide.

Overall

Most states choose to bring in their tax revenue by relying on one of the three types of taxes above, but California continues to use all three heavily. While the burden is high on retirees, it doesn’t make it impossible to retire here, it just means that extra planning may be needed to plan ahead.