The Tax Foundation said Tuesday that New Jersey’s individual income tax ranks worse than 48 other states in the 2023 Business Climate Index, which examines personal tax rates because proprietorships, partnerships, and most LLCs and S corporations are taxed under the individual income tax code.
Only California and New York score worse than New Jersey in the individual income tax rankings, one of five different taxes that are evaluated by the foundation to produce the overall rankings in the 2023 Business Climate Index. When all five taxes are considered – corporation tax, individual income tax, sales tax, property tax, and unemployment insurance tax – New Jersey ranks the worst (No. 50) overall.
“States that score well on the Index’s individual income tax component usually have a flat, low-rate income tax with few deductions and exemptions. They also tend to protect married taxpayers from being taxed more heavily when filing jointly than they would filing as two single individuals,” said Tax Foundation Policy Analyst Janelle Fritts.
“In addition, states perform better on the Index’s individual income tax component if they index their brackets, deductions, and exemptions for inflation to avoid unlegislated tax increases,” Fitts said.
New Jersey, which has a top income tax rate of 10.75%, has seven different income tax rates for single filers and eight different income tax rates for married couples filing jointly, depending on income levels. It does not adjust its tax brackets for inflation as the federal government and many states do.
The states that scored best in the Tax Foundation’s rankings of the individual income tax are Alaska, Florida, South Dakota, and Wyoming, which have no income tax and are ranked in a four-way tie for No. 1. The next best scoring states are Nevada (No. 5), Tennessee (No. 6), Texas (No. 7), Washington (No. 8), New Hampshire (No. 9) and Utah (No. 10).
The Tax Foundation is an independent, nonprofit 501(c)(3) based in Washington, D.C., that provides research and analysis to inform tax policy at the federal, state and global levels.
