Where High Earners Are Moving – 2023 Study - SmartReads by SmartAsset

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Despite cost of living challenges, the number of high-earning American households continues to grow. In 2021, 8.68 million tax returns indicated annual earnings exceeding $200,000 – up from 8.57 million returns just a year earlier. The migration of these high-earning households can have significant effects on a state’s tax base and finances.

SmartAsset set out to identify the states where high earners are moving to most. To do this, we examined the inflow and outflow of tax filers making at least $200,000 in each state between 2020 and 2021.

Key Findings

Florida and Texas gain the most high earners, while California and New York lose the most. Florida added a whopping 27,500 high-earning filers even after accounting for outflows, while Texas added the second most at 9,000. Meanwhile, California and New York lost more than 45,000 and 31,000 high-earning filers, respectively – more than any other state. California’s net outflow of high earners accelerated significantly (40%) from the previous year’s outflow.
These Northeastern states lost high earners year over year. New Jersey, Massachusetts, New York and Pennsylvania all saw a net outflow of households making $200k or more. Still, Massachusetts, New Jersey and Connecticut are the only three states with over 10% of tax filers earning more than $200,000 per year.
$200K tax base is growing fastest in Idaho, Florida and Montana. As a percentage of the overall population in each state, high-earning households grew the most in this trio of states in 2021.
Seven of the top 20 states are in the Southeast. The high-earning population is growing in the Southeast, including in Florida, North Carolina, South Carolina, Tennessee, Georgia, Alabama and Arkansas.
High earners are leaving Washington D.C. at a fast pace. The nation’s capital lost a net total of 2,009 high-earning households between 2020 and 2021. As a percentage of all filers, high earners left D.C. at a faster rate than any state.

States Gaining High-Earning Households

Just as in last year’s study, no state saw a larger influx of high-earning households than Florida. The Sunshine State gained 40,134 households earning at least $200,000 per year and only lost 12,567. Florida is one of nine states that doesn’t levy an income tax and added a net total of 27,567 high earning taxpayers.

While Texas had the second-largest net inflow of high earners in 2021 – 9,008 – that gain was just a third of Florida’s net migration. In total, Texas lost 13,743 households that earn at least $200,000 but gained 22,751.

North Carolina (5,446), Arizona (4,563) and South Carolina (4,510) round out the top five states with the largest net inflows of high-earning taxpayers, followed by Tennessee (3,917), Nevada (2,785) and Idaho (2,315).

It’s impossible to overlook the role of state income tax on these trends. Four of the 10 states with the largest net influxes of high earners in 2021 do not levy a state income tax. Meanwhile, New Hampshire, which had the 11th largest net inflow of taxpayers earning $200,000 or more, does not tax earned income but taxes interest and dividends.

States Losing High-Earning Households

California’s outflow of high-earning households accelerated in 2021 when the state recorded a net loss of 27,341 taxpayers earning at least 200,000. That was a 42% increase from 2020 when the Golden State lost a net total of 19,229 high earners.

California’s net loss was also nearly 8,000 more than New York, which posted the nation’s second-largest net migration of high earners out of the state (19,795).

Illinois, Massachusetts and New Jersey had the third-, fourth- and fifth-largest net outflows of high-earning households in 2021, followed by Virginia, Maryland and Minnesota.

While these states had the largest net outflows of high earners in 2021, they still maintain some of the nation’s highest percentages of high-earning households. In fact, at least 7.2% of the tax base in each of these states earn $200,000 or more per year.

Data and Methodology

To determine where high-earning households are moving, we considered data from all 50 states, as well as the District of Columbia. We defined high-earning households as those with adjusted gross incomes of $200,000 or more. More specifically, we closely examined the following two metrics:

Inflow of tax filers making $200,000 and above. This is the number of filers with adjusted gross incomes of at least $200,000 who moved into a state. Data comes from the IRS and is for 2020-2021.

Outflow of tax filers making $200,000 and above. This is the number of filers with adjusted gross incomes of at least $200,000 who moved out of a state. Data comes from the IRS and is for 2020-2021.

To rank the states, we determined each state’s net inflow of high-earning households. This is the inflow minus the outflow. We then ranked the states according to net inflow in descending order.

Tips for High-Earning Households

Hire a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Consider alternative investments. If you’re a high earner you may qualify as an accredited investor. You’ll need a net worth of at least $1 million (excluding their home) and an income of at least $200,000 in each of the last two years ($300,000 for married couples). Accredited investors have access to different types of alternative investments that may produce higher returns, including hedge funds and private equity.

Take advantage of a backdoor Roth IRA. If you make $153,000 and your filing status is single ($228,000 if you’re married), you’re ineligible to contribute to a Roth IRA. However, you can use a maneuver known as a backdoor Roth IRA by converting a traditional IRA into a Roth version. You’ll have to pay taxes on the money, but your funds will grow tax-free from there.