If Doctors Chose Their Job Locations Based on State Income Taxes

A comparison of state income tax burdens, geared toward physicians.

This is an interesting time of year as graduates of residency and fellowship programs start their “dream” jobs.

I remember my residency classmates (what seems like so long ago) interviewing all over the country and something that always seemed to come up (besides salary and call duties) was whether the state had no state income tax. I particularly remember that coming up in conversations about Texas and Nevada.

Training in California, we were reminded often by attendings that state income taxes for a good number of physicians were close to 10%. I planned to stay in Southern California so it wasn’t a particular concern or differentiator for me. However, for some, it seemed to be a legitimate factor in choosing their jobs.

I was reminded of it again as my current fellows dug deep into the job hunt. I heard the same phrase uttered again, “Well, you know Texas has no state income tax.” This time I couldn’t get it out my head and I had to take a look at what state income tax rates are currently at around the country.

This simple case study revolves around a married couple making $250,000, filing jointly, and taking the standard deductions (thus the effective tax rate). I used Smart Asset for the quick calculations and here’s what I found:

State

State Income Tax

Effective Tax Rate

Tax Burden

Alabama

5.00%

3.87%

$9,674

Alaska

0.00%

0.00%

$0

Arizona

4.24%

3.50%

$8,757

Arkansas

6.90%

6.19%

$15,485

California

9.30%

6.89%

$17,227

Colorado

4.63%

4.63%

$11,575

Connecticut

6.00%

5.22%

$13,062

Delaware

6.60%

6.01%

$15,026

District of Columbia

8.50%

7.43%

$18,586

Florida

0.00%

0.00%

$0

Georgia

6.00%

5.82%

$14,551

Hawaii

8.25%

7.42%

$18,540

Idaho

7.40%

6.57%

$16,433

Illinois

3.75%

3.68%

$9,211

Indiana

3.30%

3.27%

$8,183

Iowa

8.98%

4.61%

$11,527

Kansas

4.60%

4.14%

$10,356

Kentucky

6.00%

5.80%

$14,509

Louisiana

6.00%

3.52%

$8,790

Maine

7.15%

6.26%

$15,659

Maryland

5.50%

4.69%

$11,715

Massachusetts

5.10%

4.92%

$12,292

Michigan

4.25%

4.11%

$10,278

Minnesota

7.85%

6.46%

$16,144

Mississippi

5.00%

4.78%

$11,959

Missouri

6.00%

5.26%

$13,142

Montana

6.90%

6.32%

$15,789

Nebraska

6.84%

5.80%

$14,496

Nevada

0.00%

0.00%

$0

New Hampshire

0.00%

0.00%

$0

New Jersey

6.37%

4.67%

$11,672

New Mexico

4.90%

4.32%

$10,804

New York

6.65%

5.82%

$14,539

North Carolina

5.75%

5.40%

$13,495

North Dakota

2.27%

1.70%

$4,239

Ohio

5.00%

3.94%

$9,844

Oklahoma

5.25%

4.78%

$11,943

Oregon

9.00%

8.40%

$21,006

Pennsylvania

3.07%

3.07%

$7,675

Rhode Island

5.99%

4.45%

$11,135

South Carolina

7.00%

6.21%

$15,530

South Dakota

0.00%

0.00%

$0

Tennessee

0.00%

0.00%

$0

Texas

0.00%

0.00%

$0

Utah

5.00%

4.88%

$12,194

Vermont

7.80%

5.70%

$14,244

Virginia

5.75%

5.46%

$13,651

Washington

0.00%

0.00%

$0

West Virginia

6.50%

5.93%

$14,837

Wisconsin

6.27%

6.09%

$15,223

Wyoming

0.00%

0.00%

$0

Key Points

· Seven states currently have no income tax: Alaska, Florida, South Dakota, Texas, Washington and Wyoming.

· Two others (New Hampshire and Tennessee) residents pay state income taxes exclusively on income earned from dividends and investments.

· Michigan and Massachusetts are the only states with a flat tax rate.

· The following states have tiers above $250,000, where rising incomes would trigger an even higher tax rate: AZ, CA, Conn, MD, Minn, NJ, NY, ND, VT, Wis, DC.

· At this income of $250,000, based on effective tax rate, Oregon residents actually have the largest tax burden. However, as incomes rise, higher tax rate hikes are triggered in California climbing to over 10% with a max tax rate of 13.3%.

My Takeaways

Obviously the more you make, the more you save in taxes by living in a state with no income tax. These savings can add up to quite a bit over time, especially if you factor in compounding gains.

However, we all know this is only part of the story. All states have a budget and they need to get funding from somewhere. So if it’s not from income taxes, they’re likely getting a good amount from various other types of taxes: sales, business, real estate, gas, etc.

Obviously this shouldn’t be the main determinant for anyone choosing a job, but it’s nice to be informed especially when everyone is talking about it.

For more by Passive Income M.D., check out his posts here.