Are You a Millionaire? You’ll Pay Higher Taxes in These 4 Places

The election of President Donald Trump largely put a stop to calls for the federal government to adopt a more progressive income tax rate structure that would have put higher tax rates on the taxpayers with the largest incomes. Yet at the state level, the mood continues to be mixed, with some looking to impose state income taxes that feature high rates on top income earners.

A trend in the 2000s took hold that sought to impose specific taxes on those earning $1 million or more. These “millionaire taxes” appealed to those looking for the most progressive tax structures, but they also worried many people about the potential to push entrepreneurs away from locating potentially lucrative businesses within those states. The following areas have special tax rates that affect those earning $1 million or more, and as we’ll see later, some other states are looking closely at additional provisions.

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4 places where millionaires pay higher taxes

If you live in these places, you’ll face higher tax rates as a millionaire:

  • In California, a top 13.3% bracket applies to single earners making $1 million or joint filers with $1.075 million in income.
  • Connecticut has a 6.99% tax on joint filers making $1 million. It also applies to single filers with incomes of $500,000 or more.
  • New York’s millionaire tax imposes an 8.82% rate on taxable income of $1,077,500 for singles or $2,155,350 for joint filers.
  • Washington, D.C. residents pay 8.95% in taxes on income above $1 million.

Yet the extent to which these taxes represent a major departure from the rest of the tax structure differs greatly from place to place. In California, tax rates of 11.3% and 12.3% apply to those with substantially lower incomes starting at $331,000 for single filers. Connecticut’s millionaire tax adds only 0.09 percentage points to the 6.90% that those making half as much money pay, while the D.C. levy is similarly minor, at just 0.2 percentage points. New York, on the other hand, makes a big difference, charging nearly 2 percentage points extra compared to those making mid-six-figure incomes.

Will more states have millionaire taxes?

Current trends suggest that there could be millionaire taxes in new locations in the future. New Jersey already has a high rate for those making $500,000 or more, and Gov. Phil Murphy wants to raise the top 8.97% rate to 10.75% for income above $1 million. Estimates suggest that almost 40,000 taxpayers would be subject to the tax, split evenly between residents and nonresidents.

Massachusetts also is considering a millionaire tax. Proponents have called for a constitutional amendment that would impose a surtax of 4% on annual income above $1 million. Combined with the existing flat tax, that would increase what millionaires pay to 9.1%. Thus far, the state Supreme Judicial Court hasn’t ruled on the constitutionality of passing the particular provision, but a decision is expected soon.

However, some states have done away with high tax rates targeted at top-income earners. In Maine, a 10.15% tax rate was passed by a ballot measure in 2016 for those making $200,000 or more, raising it from the previous top rate of 7.15%. Lawmakers chose not to keep the tax after debating in 2017, and the top rate returned to 7.15% for 2018.

The shift in federal tax law that eliminated the unlimited deduction of state and local taxes also could play a factor in state decisions about millionaire taxes. The cost of those taxes is higher for top-income residents as a result of the federal changes, which limit deductions for total state and local taxes to $10,000 per year.

For now, millionaire taxes have generally fallen out of favor. Yet given the pendulum of political ascendancy, it’s entirely possible that those seeking maximum progressivity in tax rates could seek such provisions again in the future.

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