There's no denying that the American dream includes financial security and prosperity. It's safe to say that everyone wants to be successful and achieve a certain level of wealth. However, the value of achieving the "top 1%" in each state can vary significantly. In the United States, households with an income of $652,657 or higher are considered part of the top 1%. These households earn over eight times the amount of the median household income, which is around $75,000.
However, what might be considered wealthy in one state may not be the same in another. Have you ever wondered how much you need to make to be in the top 1% of households in your state? According to a recent study by SmartAsset, the number varies widely from nearly $370,000 to just over $950,000. Here is the breakdown of each state.
Coastal states have the highest income floor
Connecticut has the highest floor for the top 1%. You need to earn a staggering $952,902 to be in the top 1% of households in Connecticut -- more than any other state in 2023. Massachusetts ($903,401) and California ($844,266) have the second and third-highest thresholds for entering the top 1%, respectively.
With New Jersey, Washington, and New York next on the list, the data shows that the states on the East and West Coasts have a higher cost of living than the rest of the country. If Washington D.C. were a state, it would claim the overall number one spot. To be considered part of the top 1%, households there must have an income of at least $1,013,698.
Based on the analysis by the Congressional Budget Office, the wealthiest 1% of families in the United States possess more than one-third of the country's wealth, while the bottom 50% of households only own a mere 2%. The wealthy get a larger share of their income from investments than lower earners do. In fact, the top 5% of earners get over two-thirds of their income from investments. The rich also have more sources of income.
Southern states have the lowest income floor
On the other hand, some Southern states have lower income thresholds, which mean it takes less income to be considered in the top 1%. For example, residents in West Virginia only need to earn $367,582 to reach the top 1%, which is the lowest amount of income in the study.
Six of the 10 states with the lowest income thresholds are located in the Southeast. These numbers suggest that, generally speaking, the cost of living may be lower in these states.
Tax rates are higher in higher threshold states
While discussing the income thresholds, it is also essential to consider the effective tax rates for top earners in different states. Connecticut is home to the highest effective tax rate for top earners (28.4%). States in the top five rankings also have tax rates averaging in the high 20s.
In contrast, Arkansas taxes the top 1% at an average rate of just 21.11% -- less than any other state. The tax rates in the bottom states average in the low 20s, percentage-wise. This data suggests that there are significant differences in the income distribution and taxation across states.
How to increase your income
Increasing your income can seem like a daunting task, but with the right mindset and strategy, it's entirely achievable. First and foremost, assess your current earning potential and identify any skills or training you need to acquire to advance in your career.
Consider exploring job opportunities with higher earning potential or negotiating a raise with your current employer. Another option is to start a side hustle or freelance gig in a field that you are passionate about and have expertise in.
Additionally, take advantage of investment opportunities such as the stock market or real estate. These can generate passive income over time. Remember, increasing your income requires diligence and effort, but the rewards can be well worth it.
Being in the top 1% of households varies across different states. While some states have high income thresholds, others require significantly less income to be considered wealthy. Income thresholds also vary greatly depending on the state's location, population, and size. It is essential to remember that being in the top 1% is a relative measure, and what may be considered wealthy in one state may not be the same in another. Knowing where your state stands can help you understand its economic and financial status compared to others.
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