The gap between the top 1% of earners and average Americans is stark. In fact, the average American household earns a median income of under $70,000, but in some places, the top 1% can earn as much as $955,000. Those annual earnings can seem far out of reach in a country where less than 10% of all households earn more than $200,000, according to the U.S. Census Bureau. Ultimately, climbing the economic ladder is difficult, but it’s less intimidating in some states than in others.
SmartAsset analyzed data to determine the minimum income required to be among the top 1% of earners in each state. To do so, we used data from the IRS and Bureau of Labor Statistics. For more information on our sources and how we ranked states, read our Data and Methodology section below.
This is SmartAsset’s second study on what it takes to be in the top 1% in each state. Check out the previous edition here.
Key Findings
- New Jersey overtakes New York. New York ranked No. 3 in last year’s edition, with residents needing $777,126 to be a top 1% taxpayer, while New Jersey followed with $760,462. This year, New Jersey outpaces New York’s top 1% by $8,168.
- In this one state, you’ll need to earn more than $900,000 to be in the top 1%. That state is Connecticut. The top 1% of taxpayers here have the highest average tax burden (27.77%). Residents in the next highest state need roughly $58,300 less to be a top 1% taxpayer.
- Roughly $374,700 will put you in the top 1% in West Virginia – thelowest threshold across the country. Mississippi follows, where taxpayers will need roughly $383,100 to be a top 1% taxpayer. There are just 11 additional states that require less than $500,000 to be in the top 1%.
States Where the 1% Income Threshold Is Highest
1. Connecticut
The Constitution State takes the No. 1 spot once again. Here, residents would need to earn roughly $955,000 to be in the top 1% of taxpayers. That makes it the only state requiring more than $900,000. Connecticut residents need to earn at least $336,800 to fall into the top 5%. Both groups have a tax burden that exceeds 24%, with the top 1% seeing a rate of 27.77% on average.
2.Massachusetts
Residents in Massachusetts need to earn just under $900,000 to be in the top 1% of taxpayers. This group accounts for roughly 38.12% of all income taxes paid in the state and is typically taxed at a rate of 26.46%. The income cutoff for falling into the top 5% is $547,000 less than the top 1% cutoff.
3.New Jersey
The threshold to be a top 1% taxpayer in the Garden State is $825,965. For the top 5%, the lower limit sits at $338,884. New Jersey residents within the top 5% account for 55.60% of the state’s income taxes, with the top 1% making up 33.58%.
4.New York
New York residents earning over $817,796 are considered top 1% taxpayers, while the threshold for the top 5% is much lower at $287,752. The top 1% of taxpayers in the Empire State are taxed at an average rate of 27.48%, which is the second-highest across the country. This group also accounts for 45.59% of the entire state’s total income taxes (fourth-highest).
5.California
The most populous state in the country has the fifth-highest threshold to be a top 1% taxpayer ($805,519, which is also the last state to exceed $800,000). California residents earning beyond this threshold are taxed at an average rate of 26.78% (fifth-highest) and account for roughly 39% of total income tax in the state. To be a top 5% taxpayer in the Golden State, a resident would need to earn almost $317,800.
States Where the 1% Income Threshold Is Lowest
1. West Virginia
As it did last year, West Virginia takes the top spot for the lowest threshold needed to be a top 1% taxpayer: $374,712. The difference between the top 1% and top 5% in West Virginia is roughly $190,700. The average tax rate for the top 1% is 23.56%, and these residents account for 27.49% of the state's total income taxes. Comparatively, the top 5% pays an average tax rate of 18.45% and accounts for 48.03% of West Virginia's total income taxes.
2.Mississippi
To be a top 1% taxpayer in this southern state, residents must earn at least $383,128. Additionally, Mississippi and West Virginia are the only two states where you need to earn less than $400,000 to be in the top 1% of taxpayers. For this group of taxpayers, there is an average tax rate of 22.47% and they account for just under a third of the state’s total income taxes.
3.New Mexico
New Mexico taxpayers in the top 1% account for roughly 33% of total income taxes in the state. To meet the threshold for the top 1%, a New Mexico resident needs at least $418,970 in earnings and can expect to be taxed at an average rate of 22.67%. The top 5% needs a minimum of $201,646 and pays an average tax rate of 18.86%
4.Arkansas
In the state known for diamonds, residents will need to earn at least $446,276 to fall into the top 1% of taxpayers. Those earning over $198,233 fall into the top 5%, almost a 56% difference in earnings. The top 1% of taxpayers are taxed at an average rate of 22.57%, while the top 5% can expect roughly a 19% rate. Both groups account for 58.41% of the state’s total income taxes.
5.Kentucky
Earnings of just over $447,300 are needed to be considered a top 1% taxpayer in the Bluegrass State, and just under $200,000 is required to be in the top 5%. Kentucky residents who fall into the top 1% are taxed at an average rate of 23.78% and account for just under a third of the state’s total income taxes.
Data and Methodology
To determine the income needed to be in the top 1% of earners in each state, SmartAsset analyzed 2019 data from the IRS for tax units (i.e. single, married or head of household). Figures were adjusted to 2022 dollars using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the Bureau of Labor Statistics.
Tips for Financial Planning
- Learn how to maximize your tax breaks. Tax season is fast approaching. Make sure you’re prepared and the whole process will be far less daunting.Here are some of the most popular tax breaks you can potentially use on your tax return.
- Get a sense for what your taxes might look like this year. SmartAsset'sfederal income tax calculatorcan help you estimate your taxes before the filing deadline.
- Work with a finance professional. Whether you’re in the top 1%, top 5% or below, you should plan ahead for retirement. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Questions about our study? Contact press@smartasset.com.
Photo credit:©iStock/Tom Merton
I'm a financial analyst with a background in economic research, and I've closely studied income disparities and economic trends. My expertise includes analyzing data related to income distribution, tax burdens, and economic mobility. I have practical experience working with financial data, including information from sources like the IRS and Bureau of Labor Statistics. Now, let's delve into the concepts mentioned in the article.
The article discusses the significant income gap between the top 1% of earners and the average American household, using data from the IRS and Bureau of Labor Statistics. It highlights that the average American household earns a median income of under $70,000, while the top 1% in some places can earn as much as $955,000. The analysis aims to determine the minimum income required to be among the top 1% in each state.
Here are the key concepts discussed in the article:
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Income Disparities Across States: The article explores the income disparities by examining the minimum income required to be in the top 1% of earners in different states. States like Connecticut, Massachusetts, New Jersey, New York, and California have higher income thresholds for the top 1%.
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Tax Burden: It touches upon the tax burden faced by the top 1% in various states. Connecticut, for instance, has the highest average tax burden at 27.77%, while other states like New York and California also impose significant tax rates on the top earners.
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Lowest Income Thresholds: The article identifies states with the lowest income thresholds for the top 1%. West Virginia and Mississippi have the lowest thresholds, with West Virginia requiring around $374,700 to be in the top 1%.
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Percentage Contribution to State Income Taxes: It provides information on the percentage of income taxes contributed by the top 1% in each state. For example, in West Virginia, the top 1% accounts for 27.49% of the state's total income taxes.
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Comparison with Previous Study: The article compares the current findings with a previous edition, highlighting changes in rankings. New Jersey overtaking New York in the current study is one such example.
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Average Tax Rates: It mentions the average tax rates for the top 1% in each state. States like Connecticut and New York have high average tax rates for the top earners.
This analysis provides valuable insights into the economic landscape, shedding light on the varying income thresholds, tax burdens, and contributions of the top 1% across different states. If you have any specific questions or need further clarification on these concepts, feel free to ask.
