Households that make over $200,000 annually comprise just a sliver of all tax returns that are filed in a given year, but their movement between states can have a significant financial impact. When a state loses more high-earning tax filers than it gains in a given year, tax revenues may decline and the state’s fiscal situation may worsen. That’s why despite making up less than 7% of total tax returns filed across the 50 states and the District of Columbia in 2020, the migration patterns of high-earning households continue to make headlines.
SmartAsset’s free tool matches you with up to three 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.
With this in mind, SmartAsset set out to identify the states with the most movement of high-earning households. To do this, we examined the inflow and outflow of tax filers making at least $200,000 in each state between 2019 and 2020. For details on our data sources and how we put all the information together to create our final rankings, read the Data and Methodology section below.
Sun Belt states see the most migration. Of the 10 states that have the largest influx of high-earning households, eight are at least partially located in the Sun Belt. That includes the top six states, starting with Florida.
State income tax plays a role. There are nine states in the country that do not tax income at the state level. Four of those states – Florida, Texas, Tennessee and Nevada – are among the 10 places with the largest net inflow of high-income households.
D.C. has the largest proportion of high-earners, while West Virginia has the smallest. Households earning at least $200,000 per year make up 12.19% of all tax filers in the District of Columbia. The nation’s capital is one of only four places – along with Connecticut, New Jersey and Massachusetts – where high-income filers comprise more than 10% of all tax returns. Meanwhile, West Virginia has the lowest percentage of filers making $200,000 and more (2.96%).
States Gaining High-Earning Households
No state is gaining more high-earning households than Florida and it’s not even close. Despite losing 11,756 tax filers who reported at least $200,000 in income in 2020, the Sunshine State added 32,019 high-earning households that same year. That’s a net addition of 20,263 high-income filers.
Like Florida, Texas – the No. 2 ranking place – does not have state income tax. Despite ranking second, the state’s net migration of high-earning households was approximately a quarter of what Florida saw in 2020. Specifically, the Lone Star State added 18,417 filers making at least $200,000 and lost 13,061.
Arizona, North Carolina and South Carolina follow with net migrations of 5,268, 4713 and 3,967 high-earning households, respectively. Tennessee (+2,743), Colorado (+2,624), Nevada (+2,331), Idaho (+2,055) and Utah (+1,503) round out the top 10 states with the largest net migrations of high-earning filers.
States Losing High-Earning Households
It’s no surprise that most of the states with the highest net losses of households earning over $200,000 are traditionally viewed as high-tax states.
New York saw a net outflow of nearly 20,000 high-earning households in 2020, more than any state in our study. While the Empire State gained 9,650 such households, it lost a whopping 29,562 in the same year. California wasn’t far behind, losing a net figure of 19,229 high-earning filers.
Illinois, Massachusetts and Virginia had the third-, fourth- and fifth-largest net outflows of high-earning households in 2020, followed by New Jersey, Maryland, the District of Columbia, Minnesota and Ohio.
However, the 10 places at the bottom of our list still have a high percentage of households earning over $200,000. On average, high-earning households make up 6.82% of all tax filers nationally, significantly lower than the average across the 10 places at the tail end of our rankings (8.79%).
Data and Methodology
To determine where high-earning households are moving, we considered data from all 50 states, as well as the District of Columbia. We defined high-earning households as those with adjusted gross incomes of $200,000 or more. More specifically, we closely examined the following two metrics:
Inflow of tax filers making $200,000 and above. This is the number of filers with adjusted gross incomes of at least $200,000 who moved into a state. Data comes from the IRS and is for 2019-2020.
Outflow of tax filers making $200,000 and above. This is the number of filers with adjusted gross incomes of at least $200,000 who moved out of a state. Data comes from the IRS and is for 2019-2020.
To rank the states, we determined each state’s net inflow of high-earning households. This is the inflow minus the outflow. We then ranked the states according to net inflow in descending order.
Tips for Moving to Another State
Have a financial advisor help you make the move. An advisor can help you get your financial affairs in order, which can ensure that your move goes smoothly. SmartAsset’s free tool matches you with up to three 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.
Consider laws around estate planning and investment income. Ryan Flanders, a chartered financial analyst (CFA) in Bel Air, Maryland, said state income taxes and cost of living are the two most important considerations to make when moving to a new state. However, there are some not-so-obvious things you’ll also need to keep in mind. “Estate taxes and estate planning matters are specific to each state. It is important to revise wills, power of attorneys, etc. with correct verbiage when making state changes. It is also important to understand how your new state will potentially tax your estate (or trust) and make necessary changes,” Flanders said. “Investment accounts for higher net income families often make use of municipal bonds and bond funds due to their tax attributes.”
Don’t forget about health care changes. Jeremy Finger, the CEO and founder of Riverbend Wealth Management in South Carolina, recommends checking with your health insurance company to make sure you retain benefits in your new location. “Both private health insurance for younger retirees and Medicare Advantage plans have specific service areas,” said Finger, a certified financial planner. “Retirees moving out of the service area will need to find a new plan, which could mean more expensive premiums and increased out-of-pocket costs.”
Photo credit: ©iStock.com/FatCamera
The post Where High-Earning Households Are Moving – 2022 Study appeared first on SmartAsset Blog.