As the remnants of the economic recession that ended in the summer of 2009 continued to ripple through the U.S. economy, a handful of states implemented a “millionaire tax” aimed directly at high earners.
“The millionaire tax is designed to ‘catch’ the higher earners that the legislatures feel are not paying their fair share,” said Tim Gagnon, a certified public accountant who teaches at Boston's Northeastern University. “Most millionaires receive much of their income from investments, which do not always get assessed the additional rates and surcharges.”
There are 11 states that have adopted the millionaire taxes.
In California, high earners are taxed 9.3 percent plus an additional 1 percent surcharge on income over $1 million (this, and all millionaire taxes, are over and above the standard federal tax bracket that applies).
On the opposite coast, New York’s upper class is taxed 8.97 percent on income over $500,000 through Dec. 31, 2014. And taxpayers with an adjusted gross income of more than $1 million are prohibited from claiming itemized deductions -- except for 50 percent of their federal charitable contributions.
Hawaii taxes its rich 11 percent on all income over $300,000, and Rhode Island imposes a 5.99 percent tax rate on income over $125,000. Connecticut, Maryland, New Jersey, North Dakota, Oregon, Vermont and Wisconsin round out the “millionaire tax” states, each with varying rates and income caps.
Nine states have no income tax. They are Washington, Nevada, Wyoming, South Dakota, Vermont, Tennessee, Texas, Florida and Alaska. Claiming a summer home located in one of those states as your permanent residence won’t necessarily help, says Gagnon.
“If you try to renounce (your residency) to avoid taxes, there are many instant taxes that are triggered," he said, "so it is not a viable way to avoid the millionaire tax."