The elite of American society are gravitating toward particular states. Although they constitute only a tiny fraction of all annual tax filings, the migration of these high-income households has substantial financial ramifications for the states involved.
When a state experiences a net loss of high-earning taxpayers in a given year, it may witness a decline in tax revenues and a worsening fiscal situation.
Despite accounting for less than 7% of total tax returns across the 50 states and the District of Columbia in 2020, the migratory patterns of these affluent households remain a topic of significant interest.
Keeping this in mind, SmartAsset embarked on a mission to identify states experiencing the most substantial movement of high-income households.
To achieve this, we scrutinized the inflow and outflow of tax filers reporting incomes of at least $200,000 in each state between 2019 and 2020.
For detailed insights into our data sources and the methodology we employed to compile our ultimate rankings, please consult the Data and Methodology section below.
Key Insights
The Sun Belt states are witnessing the most significant migration. Among the ten states that have the highest influx of high-income households, eight have a partial presence in the Sun Belt region.
This includes the top six states, with Florida leading the way.
The imposition of state income tax plays a significant role. Nine states in the U.S. do not levy state income taxes. Of these, Florida, Texas, Tennessee, and Nevada are among the top ten destinations experiencing the largest net inflow of high-income households.
The District of Columbia boasts the highest proportion of high earners, while West Virginia has the lowest. In the nation's capital, households with incomes exceeding $200,000 per annum account for 12.19% of all tax filers. D.C. is one of only four places, alongside Connecticut, New Jersey, and Massachusetts, where high-income filers constitute more than 10% of all tax returns.
On the flip side, West Virginia has the lowest percentage of filers with incomes exceeding $200,000, standing at 2.96%.
For those seeking guidance to achieve their financial objectives, the opportunity to connect with local advisors awaits.
States Welcoming High-Income Households
Florida leads the charge in attracting high-income households, and it's not even a close race. In 2020, despite losing 11,756 tax filers reporting incomes of at least $200,000, the Sunshine State welcomed 32,019 high-income households during the same year.
This resulted in a net increase of 20,263 high-income filers.
Similarly, Texas, the second-ranking state, does not impose a state income tax. Nonetheless, it recorded a net migration of high-income households roughly a quarter of Florida's.
Specifically, the Lone Star State added 18,417 filers with incomes exceeding $200,000 and experienced an outflow of 13,061.
Arizona, North Carolina, and South Carolina follow closely with net migrations of 5,268, 4713, and 3,967 high-earning households, respectively. Tennessee (+2,743), Colorado (+2,624), Nevada (+2,331), Idaho (+2,055), and Utah (+1,503) complete the list of the top 10 states with the most substantial net influx of high-income filers.
States Losing High-Income Households
It comes as no surprise that most states suffering the highest net losses of households earning over $200,000 are traditionally perceived as high-tax states.
In 2020, New York saw a net outflow of nearly 20,000 high-income households, the highest in our study. Despite gaining 9,650 such households, the Empire State lost a staggering 29,562 during the same year. California trailed closely behind, with a net loss of 19,229 high-earning filers.
Illinois, Massachusetts, and Virginia occupied the third, fourth, and fifth positions for the largest net outflows of high-income households in 2020. New Jersey, Maryland, the District of Columbia, Minnesota, and Ohio followed suit.
However, the ten states at the bottom of our ranking still maintain a high percentage of households with incomes exceeding $200,000. On average, these affluent households constitute 8.79% of all tax filers, significantly higher than the national average of 6.82%.
Data and Methodology
To identify the migration patterns of high-income households, we conducted a comprehensive analysis encompassing all 50 states and the District of Columbia.
High-earning households were defined as those with adjusted gross incomes of $200,000 or more. Specifically, we closely examined two key metrics:
- Inflow of tax filers with incomes of $200,000 and above. This metric quantifies the number of filers with adjusted gross incomes exceeding $200,000 who relocated to a state. The data source for this is the IRS, covering the years 2019-2020.
- Outflow of tax filers with incomes of $200,000 and above. This metric represents the number of filers with adjusted gross incomes of at least $200,000 who moved out of a state. The data source for this is the IRS, covering the years 2019-2020.
To rank the states, we calculated each state's net inflow of high-earning households, defined as the inflow minus the outflow.
The states were then ranked according to their net inflow, with the rankings presented in descending order.
Guidelines for Relocating to Another State
Engage a financial advisor to facilitate your move. An advisor can assist in organizing your financial affairs, ensuring a smooth transition.
SmartAsset's free tool matches you with up to three financial advisors in your area, allowing you to interview potential advisors at no cost, thereby helping you choose the right one.
If you're prepared to find an advisor who can guide you toward your financial objectives, take the first step now.
Consider the legal aspects of estate planning and investment income. Ryan Flanders, a Chartered Financial Analyst (CFA) in Bel Air, Maryland, has emphasized that state income taxes and the cost of living are crucial factors to consider when relocating.
Additionally, estate taxes and estate planning are state-specific matters. It's imperative to revise wills, power of attorneys, and other legal documents with precise language when changing your state of residence.
You should also be well-versed in how your new state may potentially tax your estate or trust and make the necessary adjustments.
Families with higher net incomes who maintain investment accounts often utilize municipal bonds and bond funds due to their favorable tax attributes.
Don't overlook changes in healthcare arrangements. Jeremy Finger, the CEO and founder of Riverbend Wealth Management in South Carolina, advises checking with your health insurance provider to ensure you retain benefits in your new locale.
Both private health insurance for younger retirees and Medicare Advantage plans have specific service areas.
Retirees relocating outside these service areas will need to acquire new plans, which could lead to higher premiums and increased out-of-pocket costs.
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