Climbing the Income Ladder: How Taxes Affect Individual Salaries – 2023 Study

Remote work has allowed skilled workers to mobilize and take advantage of the benefits of different regions of the U.S. After all, a $100,000 salary is far more valuable in a place like Memphis than in high-cost cities like New York and San Francisco. But as workers progress in their careers and climb the income ladder, high tax rates often eat away a large proportion of their income.

With that in mind, SmartAsset began calculating the purchasing power of different salaries to see what it’s like to climb the income ladder in cities across the country. We compared earnings after three income levels – $80,000, $125,000 and $200,000 – in 76 of America’s largest cities and then adjusted those figures for the cost of living in each location.

key findings

• Up to 66% of the value of a $200,000 salary can be lost to taxes and cost of living. Meanwhile, an $80,000 salary could only deduct as much as 12% for a combination of taxes and cost of living. The tax alone can be as low as 24% on an $80,000 salary and as high as 39.5% on a $200,000 salary. However, being in a lower cost of living space can help reduce the tax burden.
• Texas is ideal for workers looking to climb the income ladder. As one of nine states that do not impose an income tax, Texas is particularly friendly to workers at all income levels. The Lone Star State is home to seven of the 10 cities where $80,000, $125,000 and $200,000 salaries top all taxes and cost of living.
• Memphis, TN has some of the lowest tax rates across the board. The effective federal, state, and local tax rates for Memphis residents making $80,000 are approximately 12%. This rises to 15% for those making $125,000 and 16.6% for those making $200,000. El Paso, TX and Oklahoma, OK rank second and third, respectively, for tax rates at each income level.
• This is an advantage in high cost cities like New York. Career climbers in expensive cities like NYC, San Francisco, Seattle, Miami and Washington, DC receive more equitable tax treatment than in other places. For example, a person earning $200,000 in New York loses only 2.7% more of their income to taxes and cost of living than someone earning $80,000. In St. Paul, Minnesota, where the cost of living is much lower, a person making $200,000 loses 5.8% more of their adjusted income when compared to someone making $80,000 a year.
• People earning $80,000 pay the highest taxes in these cities. No city has a higher tax rate (34.8%) for workers earning $80,000 than Baltimore. Charm City is followed by Portland, OR (33.4%), New York, NY (32.6%), Louisville, KY (32.2%) and Lexington, KY (31.6%). For $200,000 salaries, the top 5 look similar – only San Francisco ranks fourth, while Louisville drops to fifth.

Salary increases the most where taxes are affected

1. Bakersfield, CA
   In Bakersfield, an $80,000 salary is $52,528 after taxes and the local cost of living, which is 7.1% above the national average. A $200,000 income, meanwhile, is worth $119,365 on an adjusted basis. As a result, a person who earns $200,000 loses about 6% more of their income in taxes and cost of living than someone who earns $80,000 per year. In other words, taxes and cost of living have a bigger impact on workers climbing the income ladder in Bakersfield than anywhere else.
2. St. Paul, MN
   An $80,000 salary in St. Paul has the purchasing power of $59,418 once taxes and the local cost of living are taken into account. An income of $200,000, on the other hand, feels more like $136,830. That means taxes and cost of living eat up 5.8% more for a high earner than someone making $80,000 – the second highest in our study.
3. Minneapolis, MN
   A worker moving up the income ladder in Minneapolis would see his tax rate increase from 29.3% on $80,000 a year to 34.9% on $200,000. After accounting for taxes and cost of living, the purchasing power of an $80,000 income in Minneapolis is $58,435 while $200,000 costs $134,565. As a result, a person making $200,000 sees taxes and cost of living eat up 5.7% more of their income than someone making $80,000.
4. St. Louis, MO
   St. Louis has the third lowest cost of living in our study, so a person making $80,000 a year has $65,447 in purchasing power after taxes. But by the time they reach the $200,000 income plateau, taxes and cost of living reduce their purchasing power by 5.67% more than at $80,000 income.
5. columbus, oh
   Thanks to relatively low tax rates and a cost of living 10.7% below the national average, an $80,000 income in Columbus is $63,846. Meanwhile, a $200,000 salary in Ohio’s largest city has a purchasing power of $148,326. This means that taxes and cost of living reduce an income of $200,000 by 5.64% more than an income of $80,000.
6. Lincoln, NE
   In Lincoln, taxes and the local cost of living reduce the purchasing power of an $80,000 salary by only 22.6%. That number jumps to 28.2% for an income of $200,000, which is $143,438 after taxes and cost of living are accounted for. As a result, a worker in Lincoln loses 5.61% more of his salary when he reaches the $200,000 mark compared to an $80,000 salary.
7. Omaha, NE
   In Omaha, an $80,000 salary is worth $61,463 after taking into account taxes and the local cost of living, which is 7.6% below the national average. Meanwhile, $200,000 in income has the purchasing power of $142,506. As a result, a person who makes $200,000 loses 5.5% more income in taxes and cost of living than someone who makes $80,000 a year.
8. Sacramento, CA
   The cost of living in the California state capital is 18% higher than the national average. As a result, the $80,000 income is only $47,676 after taxes and the $200,000 income is $108,339. A person making $80,000 in Sacramento would have 40.4% of their income eaten up by taxes and cost of living. However, this number jumps from 5.4% to 45.8% once the $200,000 plateau is reached.
9. cleveland, oh
   In Cleveland, taxes and the local cost of living reduce the purchasing power of an $80,000 salary by only 24.1%. That number rises to 29.4% for an income of $200,000, which is $141,060 after taxes and cost of living are accounted for. By the time workers climb the $200,000 income ladder in Cleveland, they will lose an additional 5.3% of their income compared to an $80,000 salary.
10. Cincinnati, Oh
    In Cincinnati, an $80,000 salary is worth $60,345 after adjusting for taxes and the local cost of living, which is 4.6% below the national average. On the other hand, an income of $200,000 is $140,304. As a result, a person who earns $200,000 loses about 5.2% of their income to higher taxes and cost of living when compared to someone who earns $80,000 per year.

where taxes raise the least

These are the cities with the lowest tax gap between $200,000 and $80,000 salaries.

1. Honolulu, HI: 2.6%
2. Seattle, WA: 2.6%
3. New York, NY: 2.7%
4. Boston, MA: 2.8%
5. Anchorage, AK: 3.0%
6. Plano, TX: 3.2%
7. Miami, FL: 3.2%
8. Arlington, VA: 3.3%
9. Chicago, IL: 3.4%
10. Washington, DC: 3.5%

data and methodology

We used SmartAsset’s Paycheck Calculator to determine the tax rates for single tax-filers at $80,000, $125,000 and $200,000 for each of the 76 largest cities in the US. We adjusted after-tax wage levels for local cost of living premiums determined by data from the Council for Community and Economic Research for the third quarter of 2022.

Financial Tips for Your Working Years

• Increase your 401(k) contribution. Consider increasing the percentage of your income saved for retirement each year. Increasing the amount of money you save in a tax-advantaged account like a 401(k) can pay significant dividends down the road. SmartAsset’s retirement calculator can help you estimate how much you’ll need to save and how much you’re on track to retire.
• Consider a Roth conversion. If you are unmarried or head of household, you will not be eligible for Roth contributions if you make $153,000 or more in 2023. However, you can contribute to a traditional IRA and convert it to a Roth account. You’ll pay taxes on that money now, but the account will grow tax-free and won’t be subject to subsequent required minimum distributions (RMDs).
• Work with a financial professional. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with three vetted financial advisors serving your area, and you can have a free initial call with your advisor matches to determine which is right for you. Correct.

Questions about our study? Contact us at [email protected]

Photo credit: ©iStock.com/gradyreese

Patrick Villanova, CEPF® Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics including retirement and investing. Prior to joining SmartAsset, Patrick served as an editor at The Jersey Journal. His work has also appeared in NJ.com and The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his spare time, he enjoys hiking, trying new recipes in the kitchen and watching his beloved New York sports teams. A native of New Jersey, he currently resides in Jersey City.

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