Alabama’s highest earners benefit most from tax code changes

Alabama’s highest-earning families are benefiting the most from the sweeping changes in the tax code that go into effect this year.

The state’s highest earners – those making at least $150,000 a year – topped a WalletHub study released Wednesday comparing how various income levels in each state and the District of Columbia gain or lose compared to workers in other states.

A prime reason that Alabama’s higher earners benefit more than those in other states is because income producers elsewhere are hurt by the high taxes they pay to their states. The tax code now limits to $10,000 the amount that workers can deduct in state and local taxes paid. Those making higher incomes in states such as California, New Jersey and New York pay more than that threshold so their federal tax liability is increased.
“Conversely then, those taxpayers in low-tax states – even those with extremely high incomes – such as residents in Florida and Texas, are benefiting,” said attorney David S. Neufeld, one of WalletHub’s tax experts.

Tennessee, Wyoming, Arkansas and Ohio rounded out the top five for the highest income bracket.

On the other hand, Alabama’s lowest-income bracket – those making around $25,000 – are among those who will benefit the least from the tax changes. The Yellowhammer State ranked 47^th, topping only Pennsylvania, Montana, Wyoming and Vermont.

Middle-income families in Alabama making around $50,000 were the 15^th most positively affected by the tax changes.

WalletHub determined how states most benefited by using data from the Institute on Taxation & Economic Policy’s 2018 report, which showed estimates of tax change at seven points in a state-specific income distribution.

Workers in all states will benefit from the simplification of the tax code, which increases the standard deduction from $12,000 to $24,000. Benjamin Goldburd, a partner at Goldburd McCone LLP and another WalletHub expert, said an employee who just receives a W-2 will find tax preparation much easier.

“Previously, such a taxpayer would need to gather all the receipts to prove their viable deductions. Such documentation adds a layer of complexity that might require a professional to review, in order to determine what is viable and what is not,” he said. “Now, such a taxpayer, armed with an online self-filling service, can enter their income…and essentially be finished with their tax return overnight.”