According to the data provided by the IRS, between 2019 and 2020, 28 states experienced a net gain in the number of residents who filed income tax returns due to interstate migration. The states that experienced the largest gains were Florida, Texas, North Carolina, Arizona, and South Carolina. The states that experienced the largest losses were New York, California, Illinois, Massachusetts, and New Jersey.

When all persons linked with each tax return are considered, including spouses and dependents, it is determined that 29 states saw a net increase in individuals. In comparison, 21 states and the District of Columbia suffered a net loss. Only Wisconsin had a decline in the number of tax returns connected with interstate migration, although the state did see an increase in the number of persons related to the returns of those who moved in.

The decision of an individual or family to relocate from one state to another can be influenced by a variety of factors, including employment or educational opportunities, the desire to be close to family or friends, geographic and lifestyle preferences, such as natural landscape, weather, and population density, to name a few of these factors, and the proximity of the two states in question.

Cost-of-living issues, including tax differentials, may not be the major reason for moving to a new state. Still, they are often one of many reasons that individuals consider when determining whether or not to relocate and where they should move.

More People From The United States Moved To States That Had More Stable Tax Systems And Lower Tax Rates

Keeping this in mind, one thing that can be gleaned from the IRS migration statistics for 2019-2020 is that a significant positive association exists between a state's tax competitiveness and incoming migration. Generally, states with lower tax burdens and more rational tax arrangements have seen a greater influx of new residents than those with higher tax burdens and more cumbersome tax structures.

Five of the ten states that saw the largest increases in the number of residents filing income tax returns are those that do not impose any individual income tax on wage or salary income, and two of the remaining states had top marginal individual income tax rates that were lower than the national median during the relevant period. In recent years, such states have shown even more signs of competitive improvement. Most states on the top 10 list either do not impose individual income taxes on wage and salary income, have a flat income tax or are transitioning toward adopting a flat income tax.

In addition, only nine of the 28 states with a net inward migration of individuals who filed income tax returns had a top marginal individual income tax rate higher than the national median. During this time, 15 states and the District of Columbia had top marginal rates higher than the median, making them part of the 22 states and the District of Columbia that had a net outward migration of income tax filers. States with a top marginal rate equal to or lower than the 2019 median of 5.4 percent acquired a total of 225,000 net new inhabitants due to migration from states with higher rates than the median.

Why Migration Across State Lines Is Important

The impact migration from one state to another has on tax revenue, economic production, and economic growth over time is one reason why politicians in a given state should be concerned about interstate migration patterns in that state. Between 2019 and 2020, the majority of states that had a net loss in income tax filers due to interstate migration also saw a net loss in income linked with interstate migration. On the other hand, most states that saw increases in taxpayers also saw comparable gains in AGI.

Hawaii was the only state to see a net loss of population while simultaneously experiencing a net gain in AGI. New residents brought in an average of $75,000 in AGI per return while leaving residents had an average of $64,000 in AGI per return. Meanwhile, three states—Indiana, Kentucky, and Missouri—saw a net rise in the number of persons filing income tax returns but a net loss in AGI. This is because new residents in these states earn less on average than those who migrated out of the state. A portion of this may be attributed to modifications in the cost of living, which often occur when people move from working in one state to working in another for the same employer.

Higher-Income Residents Moved to Low-Tax States

The statistics from the IRS also reveal a breakdown of interstate migration according to AGI level. When looking at taxpayers with an AGI of $200,000 or more, the states of Florida, Texas, Arizona, North Carolina, and South Carolina were shown to be the most popular destinations for inbound interstate movements. New York, California, Massachusetts, Illinois, and Virginia were the states that had the biggest declines in the number of taxpayers who had an AGI of $200,000 or more during this period.