When it comes to perceptions about tax rates, California gets a bad wrap. While many active adults are drawn to the Golden State for its idyllic weather, diverse entertainment options, and proximity to the beach, mountains, lakes, and other natural wonders, others are put off by what they believe to be high tax burdens.
A Lower Tax Rate Than Most Other States
Fortunately, this fear is unfounded because California tax burdens are not as bad as one may believe. In fact, California state and local tax obligations fall lower than most states in the U.S., according to a recent WalletHub in-depth analysis. When WalletHub measured a person’s income contribution towards various tax burdens, they found that the tax contributions were lower than expected for low-income taxpayers (who pay 9.65 percent of their income to in-state taxes) and even for middle-class taxpayers (who pay 9.22 percent of their income to in-state taxes). This data puts California residents under the state median of 9.47 percent of income going to state taxes, with Illinois being the least tax-friendly state and Wyoming being the most tax-friendly state.
Many people mistakingly believe California’s tax rate is so high because they tend to focus on the high percentage that the very rich (the one percent) pay, which is 13.3 percent. However, that rate is only applicable to people making over $1 million annually.
Tax-Friendly for Retirees
Those looking to retire in California should consider what income they’ll be relying on because, if they’re not in that one percent of earners, the state is likely a great bet when it comes to tax rates. And unlike some other states, California doesn't tax Social Security income. California also has the country's 16th lowest property tax rates, at 0.77 percent.
With lower-than-average property tax rates and income tax rates, California’s high tax stereotype is just that—an unfounded belief that shouldn’t scare away active adults from all of the wonderful reasons to retire in the Golden State.