Where millennials pay the highest taxes - 2017 edition

Many studies seem to suggest that millennials are in a financial pickle. For starters they earn less than their parents did when they were young adults. Plus, the average millennial has over $30,000 in student debt. For millennials who are struggling to boost their net worth and make the leap to homeownership, the last thing they likely want to face is a large tax bill. But unfortunately, high tax rates are a reality for many millennials across the country.

Read the 2016 edition of this annual study.

Study Specifics

SmartAsset wanted to find the cities where millennials have the highest tax bills. So we looked at five-year estimates of median household incomes from the Census Bureau's 2015 American Community Survey. Then we used our income tax calculator to estimate the federal, state and local tax burden for millennials in the 100 largest U.S. cities. We included FICA taxes in our analysis but excluded sales taxes and fuel taxes.

For the purposes of our study younger millennials are adults between the ages of 16 and 24 and older millennials are adults between the ages of 25 and 44.

Key Findings

• Taxes are high for Mid-Atlantic millennials. Effective tax rates are high for younger millennials in Baltimore, Maryland and three cities in Virginia. Young adults in places like Arlington, Virginia earn more, on average, than their peers and therefore pay more taxes.

• Older millennials take a hit on the West Coast. High income taxes are nearly unavoidable for many adults between the ages of 25 and 44 who live in Portland, Oregon and some of the biggest cities in California.

• Head to Texas or the South. Younger and older millennials who pay the lowest taxes live in the deep South or in cities like Laredo and Lubbock, Texas.

Where Younger Millennials Pay the Highest Taxes

Where Older Millennials Pay the Highest Taxes

Our analysis reveals that six cities in our study (San Francisco, San Jose, Honolulu, New York, Arlington, Virginia and Portland, Oregon) rank as places where younger and older millennials pay the highest taxes. Older millennials also have high tax bills in six other cities, including Washington, D.C., Oakland and Fremont, California.

In terms of the cities where older millennials have the biggest tax burdens, we also had a three-way tie for 10th place. In Irvine, Santa Ana and Anaheim, California, older millennials who earn around $81,917 (the median household income for adults between the ages of 25 and 44) can expect to pay about $19,793 in federal taxes and $4,607 in state and local taxes.

Washington, D.C.

The nation's capital has a high cost of living. Tax rates are high, too, particularly for the top earners in the city. Those who earn between $60,000 and $350,000 face a local marginal tax rate of 8.5%. Based on our estimates, an older millennial in D.C. who earns the median income will spend roughly 31% of his or her income on taxes.

Oakland, California

Income tax rates in the state of California vary widely based on income. The poorest residents pay a marginal tax rate of 1% and the wealthiest residents face a marginal rate of 12.3%. In Oakland, the median household income for adults between the ages of 25 and 44 is nearly $90,500. Adults who earn the median income pay an overall effective tax rate of 30.9% (with federal taxes included).

Fremont, California

Fremont is located roughly an hour away from San Francisco, by car. The average older millennial earns around $90,499 per year and has a combined effective tax rate of 30.9%. That adds up to about $28,000 in federal, state and local taxes.

Data & Methodology

The Census Bureau data that we used in the 2016 edition of our study focused on millennials between the ages of 18 and 34. But that data hasn't been updated yet. Therefore, we gathered data for two different groups within the millennial generation. Since the exact definition of the term millennial can vary depending on who you ask, our study refers to these two groups as younger millennials (adults between the ages of 16 and 24) and older millennials (adults between the ages of 25 and 44).

We made several assumptions throughout our study. For example, we assumed that a millennial would take the standard deduction and file taxes as a single filer claiming one exemption (meaning that he is not married and has no children). We also assumed that a typical millennial wouldn't make any pre-tax contributions to a 401(k) or another retirement account.

Nick Wallace completed the data analysis for this study.

Questions about our study? Contact us at press@smartasset.com

Photo credit: ©iStock.com/vm

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