Report: Maryland among states with highest loss of high-earning residents

Despite a national increase in high-earning American households, Maryland is one of the leading states experiencing a loss of these residents, who are choosing to migrate to states with lower income taxes and a cheaper cost of living.

As the number of Americans filing tax returns with earnings over $200,000 grows, these earnings are coupled with migration trends that are influencing states’ finances, according to a new report from SmartAsset. High earners are leaving states such as California and New York, instead choosing to move to states such as Florida and Texas.

JP Krahel, professor of accounting at Loyola University Maryland’s Sellinger School of Business, said the primary cause of migration of high earners has always been the variation in tax rates among states, and that many of the states with the highest increase in high earners have lower or no income tax, attracting households from states with higher tax rates.

Maryland was the state with the sixth-largest net outflows of high-earning households, trailing California, New York, Illinois, Massachusetts, New Jersey and Virginia, according to the report. Washington, D.C., would follow, and high earners left D.C. at a faster rate than any state.

The report examined tax filers with an adjusted gross income of $200,000 and above using aggregated IRS data, and then compared the inflow and outflow of these filers to determine the state’s net inflow of high-earning households.

Despite the migration of high-earning individuals, these states nonetheless maintain some of the highest percentages of high-earning households.

Texas and Florida, the two states with the highest gains in high-earning households, do not have a state income tax, while Maryland has a tax rate above 5.5% for the same individuals. Krahel also noted that Maryland has a piggyback county tax, which in some cases further exacerbates the difference between this state and others.

Krahel said that while the tax rates have always contributed to this kind of migration, the growth in remote work has made moving to a low-tax state more feasible.

States with higher tax rates, such as Maryland, tend to have more urban centers that people have long been drawn to for their high earning potential. As in-person work is becoming less necessary, many people are choosing to live elsewhere, according to Krahel.

Krahel said that as office buildings’ occupancy rates decrease, much of these spaces may be converted to residences, which might lead to more available housing and lower property values — both of which could lessen the migration trends.