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Congress and the President still have time to act to prevent tax increases across the board in 2013. Still, the consensus suggests that at least some tax breaks will be reduced or eliminated and many taxpayers will likely pay higher taxes. The tax foundation recently performed an analysis by state to identify how families earning median incomes will fare with a seemingly new tax landscape in 2013. Are you living in state that’s likely to experience a steep tax increase?

Median income families and rising taxes
The analysis conducted assumes that the 2% payroll tax cut expires, all of the Bush-era and Obama tax cuts expire, and the alternative minimum tax (AMT) remains un-patched. As a reminder, the AMT has still not been retroactively patched for 2012. It’s important to note that the expiring 2% payroll tax cut will have the largest impact to median income earning families. The savings was around $2,000 for combined incomes of $100,000 per family.

Typical families living in these states may experience the greatest tax increase
Taxpayers with a median income near $101,682 and with two children can expect a 6.82% tax increase in relation to income or $6,933. Maryland taxpayers have a slightly higher median income at $106,707, but can expect a 6.74% tax increase or $7,194. Connecticut, Massachusetts, and New Hampshire round out the top 5 list with tax increases as a % of income all above 6.53%. We find it interesting, but not surprising that the taxpayers that are likely to see the greatest tax increases, live in the Mid-Atlantic & New England. These states typically have the highest median incomes as compared to states in the rest of the country. In case you are wondering, New York is in the middle of the pack in terms of rising taxes as a % of income for median income earning families.

Where will taxpayers pay the smallest increase in taxes?
The least is Washington state at a 4.12% increase as a % of income, then Hawaii, Colorado, Kansas, Illinois & California. These states are considered middle-income earning compared to other states. This is interesting because it supports the notion that states with high median-incomes and low median incomes will be most negatively impacted by the tax increases. States such as Washington will likely be least impacted. This is the case because many high income earners are penalized without the AMT patch and low income earners may be hurt by losing the child tax credit, a lower standard deduction, and the elimination of the 10% tax bracket.

More Questions? Browse Answers or ask your state tax questions online.

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