As Hoosiers, your tax burden is on the lower end of the 50 states.
According to a report released by financial website WalletHub, Indiana ranks 31st in the nation for personal tax burden, defined as the percentage of a person’s income people pay toward taxes.
“One simple ratio known as the ‘tax burden’ helps cut through the confusion. Unlike tax rates, which vary widely based on an individual’s circumstances, tax burden measures the proportion of total personal income that residents pay toward state and local taxes. And it isn’t uniform across the U.S., either,” the WalletHub report states.
In Indiana, Hoosiers pay about 8.22% of their income as taxes. Among that total, the report breaks that down into property taxes, 2.22% (42nd overall), income taxes, 2.26% (28th) and sales and excise taxes, 3.74% (18th).
Indiana’s property tax ranking is likely among the nation’s lowest due to property tax caps that were put into place during the administration of former Republican Gov. Mitch Daniels. That law capped the amount of property tax a homeowner can pay at 1% of their total assessed value. For example, a person with a $150,000 home can only pay a maximum of $1,500 in taxes, even if the tax rate would normally assess a higher bill.
In exchange for the loss in revenue from tax caps, though, Indiana lawmakers offset some of the change with an increased sales tax to 7%, one of the highest in the nation, while legislators have also recently increased other taxes, including Indiana’s gasoline tax. Those point-of-sale taxes likely account for Indiana’s higher ranking in the sales and excise tax category.
Indiana boasts the lowest ranking of its neighboring states, with Illinois at ninth highest at 9.67%; Ohio at 12th highest at 9.31%, Kentucky at 20th at 8.77%; and Michigan at 25th at 8.4%.
Although Illinois has a higher tax burden, the state also has a much higher median income at $61,229.
Indiana, Michigan and Ohio all have median household incomes around $52,500, while Kentucky’s household income is significantly lower at $46,500.
The WalletHub study also notes that taxes are generally lower in “red” states than “blue” states, based on the way each state voted in the 2016 presidential election. States that went for President Donald Trump have an average rank of 30, while states that went for Hillary Clinton have an average rank of 18.
Blue states tend to sit on the coasts and have larger urban centers, which require significantly more government services to operate, as compared to red states, which make up much of rural middle America.
Americans spend 8.1 billion hours doing taxes each year. The average person spends 11 hours and $200 completing his or her tax return, according to WalletHub.
WalletHub also reports that 4.6 million fewer taxpayers will get a federal tax refund this year. The average refund in 2019 is $2,957, as of March 15.
Due to the Tax Cuts and Jobs Act of 2017, commonly known as the “Trump tax cuts,” income tax rates were decreased but federal withholding rates also changed.
That’s led to some surprises for taxpayers this spring, as some people who typically receive large returns found out they will get much less back or even have to pay some additional tax because not enough was withheld from their paycheck throughout 2018.
Federal and Indiana income taxes are due April 15.
The full WalletHub report can be found at wallethub.com/edu/states-with-highest-lowest-tax-burden/20494.