The Tax Foundation's 2026 state income tax data shows the gap between the highest-tax and lowest-tax states widening at the top of the income scale. California's top marginal rate reaches 14.4% once its 1.1% payroll tax on wages is added to the 13.3% income tax rate, while nine other states cut their income tax rates on January 1, 2026. For high earners weighing where to live and work, the map now has more sharply defined winners and losers than it did a year ago.
What changed
Two forces are pulling in opposite directions. In high-tax states, new surcharges are layering onto already-elevated top brackets: Maryland created two new brackets this cycle, taxing income above $500,000 at 6.25% and above $1 million at 6.5%, plus a separate 2% surtax on capital gains for anyone with federal adjusted gross income above $350,000, according to a summary of the state's FY 2026 budget bill. Washington, which has no wage income tax, added a 2.9% surcharge on top of its existing 7% capital gains tax for gains above $1 million, producing a 9.9% top tier that applies to 2025 gains and first appears on capital gains returns due April 15, 2026, according to the Washington Department of Revenue. Meanwhile, nine states cut individual income tax rates effective January 1, 2026: Georgia (5.19% to 5.09%), Indiana (3.0% to 2.95%), Kentucky (4.0% to 3.5%), Mississippi, Montana, Nebraska, North Carolina (4.25% to 3.99%), Ohio and Oklahoma (4.75% to 4.5%), according to CBS News's review of the changes. Idaho separately cut its rate to 5.3% retroactive to 2025.
The high-tax end of the scale
California's 13.3% top state rate applies to income above $1 million for single filers, and the additional 1.1% payroll tax on wages brings the combined marginal rate to 14.4%, per the Tax Foundation. New York's top state rate is 10.9%, reserved for income above $25 million, but New York City residents add a local rate that tops out at 3.876%, pushing their combined marginal rate to as much as 14.776% at the very top of the income scale. New Jersey's top rate is 10.75% above $1 million, and Massachusetts layers a 4% "millionaire's surtax" on top of its flat 5% rate for income above $1,083,150, for a top marginal rate of 9%.
The after-tax math
Example, using round numbers: an executive already earning well above $1 million receives an additional $1 million of wages from a bonus or vesting equity. At California's 14.4% combined marginal rate, that extra $1 million generates $144,000 of state tax. The same $1 million taxed at North Carolina's flat 3.99% rate generates $39,900, and at Kentucky's new 3.5% rate, $35,000. The gap between California and North Carolina on that single tranche of income is $104,100, before property and sales taxes. For a Maryland resident above the new top bracket, the state portion alone would be $65,000 at 6.5%, before county income tax. For a founder selling stock in Washington, a $1 million gain above the state's $1 million capital gains threshold would face $99,000 of state tax at the 9.9% tier, compared with $70,000 at the base 7% rate.
| State | Top marginal rate, 2026 | Applies above |
|---|---|---|
| California | 14.4% (13.3% + 1.1% payroll) | $1,000,000 |
| New York City resident | up to 14.776% (state + local) | $25,000,000 (state top bracket) |
| New Jersey | 10.75% | $1,000,000 |
| Maryland | 6.5% | $1,000,000 |
| North Carolina | 3.99% (flat) | all income |
Moves to discuss with your advisor
A change of legal domicile is a factual, documented process rather than a box checked at tax time. Households already planning a move for lifestyle or business reasons may find it worth discussing with a CPA how a relocation date interacts with equity vesting, a business sale or retirement account withdrawals, since states apply their own rules to income earned before and after a move. Maryland residents with large realized gains face both the new 6.5% bracket and the separate 2% capital gains surtax once federal adjusted gross income passes $350,000, which makes the timing of a sale worth modeling. Washington founders and investors realizing a large gain in a single year are the group most exposed to that state's 9.9% tier.
What to watch
Indiana's rate is already scheduled to fall again, to 2.9% in 2027, according to the Tax Foundation, and several of the other rate-cutting states are moving along multi-year phase-downs. On the other side of the ledger, the Maryland and Washington changes show that high-tax states are adding tiers aimed specifically at top earners and large capital gains rather than raising rates across the board.
Sources
- First reported 2026 State Income Tax Rates and Brackets — Tax Foundation
- 9 states are cutting individual income taxes in 2026. See if yours is one of them. — CBS News
- Maryland 2026 Tax Brackets: New 6.25% and 6.5% Rates Explained — VisaVerge
- New tiered rates for Washington's capital gains tax — Washington State Department of Revenue
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
