US States Taxation

By pjain      Published Oct. 17, 2019, 3:21 a.m. in blog Fin-Plan-Strategy   

Tax

US State Taxation - Under the Hood Review

STR: Focus on TOTAL Tax burden

If you want to be very tax-conscious, you should take into account all the types of taxes you may pay.

Note - this is innacurate as eg California marginal rate is over 9% while it assumes base of 4% only!

State Total Tax
NY 12.8%
HI 12.2%
VT 10.75%
MN 10.5%
CN 10.4%
CA 9.5%
Average ?
TN 9.5% - 5.7%
AK 5,1%

STR: What Matters for You Differs at Life State

Medical care may be better in area with higher taxes

Family Proximity

You may wish to live close to your children or grandchildren.

Proximity to Recreation, Views, Ocean

You may simply like the view out your back window.

BPR: Make New friends as you Move

Quality of Life - More than Low Taxation

Infrastructure, Emergency Services, Low Crime and Safety

Low and No tax states often lack in services that seniors are likely to need such as public transportation and healthcare assistance, charging for ambulance services, etc. It can also be in the form of poor schools which reflects housing values.

Check very carefully before you buy and remember forms of taxation can be hidden in such things as sewer and water and other fees levied by the municipality.

States with higher taxes tend to provide more infrastructure (roads, etc.) and services than those that states that have lower taxes. Plus, let's not forget that income taxes are just one slice of the total tax burden pie.

STR: Keep Property in Family Trust for Heirs while Living Outside

STR: Select State of Residence With No Tax - WA, NV, TX, FL, WY, SD, TN, AK

STR: Mobile Lifestyle

I reside in a 45 foot luxury motor home and have "residence" in one of those no tax states so I needn’t file. I head to wherever I feel like going. So I pay almost no tax and I also pay no property taxes due to my mobility.

Beware of Added State Taxes

States have various ways to raise revenue, and those without state income taxes find different means to pay for roads, schools and other infrastructure.

STR: During Working Years - States with Low or No Wage tax Burdens

NH is great for working in high tax MA but not get charged for Wage Taxes.

=== Beware of Rising Taxes in Future

When we first moved to TX 23 yrs ago TX' total tax burden was in the lower 1/3 of all states. It now at about the 50% mark..

Beware of High State User Fees, Sales and Gas Tax (FL 7%, TN 10%, WA 9%, TX 8.5%)

One typical source is sales taxes. Sales taxes are very regressive and fall (percentage-wise) much more heavily on lower income people that higher income people.

Florida levies a 6 percent sales tax, and the average locality tacks on 1.08 percent, according to the Tax Foundation, for a combined average of 7.08 percent.

Tennessee, at 9.55 percent, has the highest combined sales tax of any state in the U.S.

Washington state levies a tax of 49.4 cents per gallon on gasoline, one of the highest rates in the nation.

Alaska has no statewide sales tax, although some localities have one.

New Hampshire has no sales taxes at all.

Car Registration

Voters in Washington voted for $30 license plate tabs a few years ago. Never saw a flat rate of $30. The state, county, and/or the cities add on extras!! Recently I heard that the $30 tabs were overruled. In Ohio I paid $54 for my plates for a Hyundai SUV. My friend paid the same for all of his vehicles including his RV.

POT TAXES

Washington and Colorado both legalized pot at the same time so there is a lot of pot tax going to the states. Very high tax on pot. Colorado has given money back to the residents but of course Washington is still crying for more money.

Gas Taxes

Washington has the highest gas tax at almost 50 cents. Also very high booze and cigarette taxes. Since the state seems to tax everything it makes you wonder if any of them get special pricing on booze, gas, cigarettes, and pot considering how they tax everything that’s fun!!

Beware of High State Property Tax (TX)

Many No-Income-Tax states use property taxes as a revenue stream. Three of the top five states that relied the most on property taxes have no income taxes.

New Hampshire got nearly 64 percent of its revenue from property taxes — the highest rate of any state.

Alaska got nearly 46% of its revenue from property taxes Alaska also gets a big chunk of income from oil — and it’s not the only state without an income tax to do so.

Texas got nearly 44% of its revenue from property taxes

California, New Jersey and Vermont, which have a state income tax, are ALSO high property tax states.

Wyoming, too, collects significant revenue from so-called severance taxes, which are levies imposed on the extraction of natural resources.

Consider Investment tax Burdens in Selecting State

Consider Pension, SS and Retirement tax

Federal Taxation on SS income

Your benefits may still be subject to federal taxes, depending on your income.

Federal Taxation on Payrolls

The Social Security payroll tax is 12.4 percent, with the employee paying 6.2 percent and the employer paying 6.2 percent.

Self-employed workers pay the full 12.4 percent themselves.

In 2020, you paid Social Security tax on income up to $137,700, an increase from the $132,900 income cap in 2019.

SS Payroll taxes Holidays and Deferrals

The IRS issued guidance last August that gave employers the option to defer collection of employees’ portions of Social Security payroll taxes between Sept. 1 and Dec. 31, 2020. The idea was to give workers a bit more in their paychecks during that four-month stretch in order to help ease the impact of the COVID-19 crisis. Employees originally were required to repay the deferred taxes this year by April 30, either in a lump sum or incrementally through increased paycheck withholdings. You'll still have to repay any payroll taxes deferred in 2020, but Congress has given you more time to do so. Under stimulus-related legislation signed into law on Dec. 27, you'll now have until the end of 2021 to repay the deferred Social Security payroll taxes before penalties and interest start to accrue.

Important as Retirement/Pension could be Your Only Income

If you live in one of the 37 states that don't tax Social Security (or in the District of Columbia). You might also be taxed on other types of retirement benefits, such as pensions or 401(k) distributions.

Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia collect state income tax on Social Security payments to at least some beneficiaries.

TX> We have been paying taxes to the Federal IRS in Texas on my husband's pension for years. While Texas does not tax pensions, the federal taxes are killing us because that is all we live on, SS and his pension.

We live in Idaho and our pensions from California is our only income. We have to pay taxes on it.

I live in Maryland and my defined pension is taxed too. California and Maryland obviously are states that DO tax retirement income.

Social Security taxed federal - States differ

When I turned 66 I took my SS but since I work full time they tax my SS. But I was lead to believe that if you aren’t working then there is no federal taxing.

Tennessee eliminated its tax on investment income in 2021.

Inheritance Taxes State can Add up for you Even if No Federal Estate Taxes

Federal Estate Taxes 101

Most people don't have to worry about the federal estate tax as it excludes up to $11.7 million for individuals and $23.4 million for married couples in 2021 (up from $11.58 million and $23.16 million, respectively, for the 2020 tax year). But 17 states and the District of Columbia may tax your estate, an inheritance or both, according to the Tax Foundation.

State Estate Taxes 101

Estate taxes are levied on the value of a decedent's assets after debts have been paid.

Eleven states have only an estate tax: Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. Washington, D.C. does, as well.

Maine, for example, levies no tax the first $5.8 million of an estate and taxes amounts above that at a rate of 8 percent to a maximum 12 percent.

State Inheritance Tax

Inheritance taxes are a tax on what you receive as the beneficiary of an estate.

Kentucky, Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania have only an Inheritance Tax.

Kentucky for example, taxes inheritances at up to 16 percent. Spouses and certain other heirs are typically excluded by states from paying inheritance taxes.

States that tax both an inheritance tax and an estate tax

Maryland is the lone state that levies both an inheritance tax and an estate tax.

Summary

You need to research if these states with no personal tax are also inheritance tax friendly?

Connecticut: Estate tax of 10.8 percent to 12 percent on estates above $7.1 million

District of Columbia: Estate tax of 11.2 percent to 16 percent on estates above $4 million

Hawaii: Estate tax of 10 percent to 20 percent on estates above $5.5 million

Illinois: Estate tax of 0.8 percent to 16 percent on estates above $4 million

I reside in Illinois and was shocked to learn how much my estate will owe Illinois upon my passing.

Iowa: Inheritance tax of up to 15 percent

Kentucky: Inheritance tax of up to 16 percent

Maine: Estate tax of 8 percent to 12 percent on estates above $5.8 million

Maryland: Estate tax of 0.8 percent to 16 percent on estates above $5 million; inheritance tax of up to 10 percent

Massachusetts: 0.8 percent to 16 percent on estates above $1 million

Minnesota: 13 percent to 16 percent on estates above $3 million

Nebraska: Inheritance tax of up to 18 percent

New Jersey: Inheritance tax of up to 16 percent

New York: Estate tax of 3.06 percent to 16 percent for estates above $5.9 million

Oregon: Estate tax of 10 percent to 16 percent on estates above $1 million

Pennsylvania: Inheritance tax of up to 15 percent

Rhode Island: Estate tax of 0.8 percent to 16 percent on estates above $1.6 million

Vermont: Estate tax of 16 percent on estates above $5 million

Washington: Estate tax of 10 percent to 20 percent on estates above $2.2 million

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US States that have no Income Tax - To Move to

Florida - Climate floods keep to the Hills

  • Great climate to retire though in a few decades of global warming you may want to keep to the hills

Florida levies a 6 percent sales tax, and the average locality tacks on 1.08 percent, according to the Tax Foundation, for a combined average of 7.08 percent.

NV Nevada - Close to California

  • Lots of revenue from tourism ie hotel taxes and gambling in casinos help it maintain a no sales tax.
  • It does have a high sales tax rate ~8%

Las Vegas has fewer services, and those that exist do not offer as much and are not particularly well run. I would have much rather paid state taxes and had some services available.

TX Texas

Texas has no state income tax but relies on high sales and use taxes. When paired with local taxes, total sales taxes in some jurisdictions are as high as 8.25%. Property tax rates in Texas are also high.

It's true that TX does not have an income tax but it makes up for a lot of that with one of the highest property tax and sales tax rates in the country.

When we first moved to TX 23 yrs ago TX' total tax burden was in the lower 1/3 of all states. It now at about the 50% mark..

Texas has fewer services Winter 2020/21 the storms and poor grid showed what Texans faced in terms of infrastructure.

Texas got nearly 44% of its revenue from property taxes

Washington - Great to Work and Grow, Rainy

  • it has no state income tax
  • Home to Microsoft and Amazon fortunes,
  • But is rainy a lot and has a higher suicide rate
  • No corporate income tax but has other business tax

  • One of highest sales tax rates of over 9% and high gas taxes Washington state levies a tax of 49.4 cents per gallon on gasoline, one of the highest rates in the nation.

Washington has the highest gas tax at almost 50 cents. Also very high booze and cigarette taxes.

Since the state seems to tax everything it makes you wonder if any of them get special pricing on booze, gas, cigarettes, and pot considering how they tax everything that’s fun!!

TN - Low Investment and Retirement tax Burdens

Tennessee eliminated its tax on investment income in 2021. Tennessee, at 9.55 percent, has the highest combined sales tax of any state in the U.S.

Tennessee, which has no income tax, has the highest combined state and local sales tax rate in the nation, averaging 9.53% (that's a Jan. 2020 calculation).

--- Wyoming - - COLD, Poor QoL but no social security or retirement income tax

  • Cold northern state
  • it has no state income tax
  • Does not have social security or retirement income tax
  • No corporate income tax but has other business tax

Low property tax rate of ~0.6% and lower sales tax rates of 5.5% Wyoming like Alaska collects significant revenue from so-called severance taxes, which are levies imposed on the extraction of natural resources.

Alaska - COLD, Poor QoL

  • Cold - also doesn't have a state sales tax though some cities do. Alaska relies on excise, oil and mining taxes.

Alaska has no statewide sales tax, although some localities have one.

Alaska got nearly 46% of its revenue from property taxes Alaska also gets a big chunk of income from oil — and it’s not the only state without an income tax to do so.

South Dakota - COLD, Poor QoL

  • Colder Northernly state
  • No state income tax - instead taxes tobacco and alcoholic beverages and others
  • Otherwise one of most retirement friendly states with low sales tax
  • Property taxes collected by local governments

NH - COLD

NH is great for working in high tax MA but not get charged for Wage Taxes. New Hampshire, however, taxes interest and dividends, according to the Tax Foundation.

New Hampshire has no sales taxes at all. - BUT a meals tax of 9% is one of the highest - ?Tax on booze - Human nature dictates that it is worth it to travel an hour plus to simply get cheaper alcohol when they could pay the same in their own state minus the gas and time. - Low taxes maybe worth it when you are buying high ticket items like appliances, etc., but to save $5 on a $100 purchase?

  • New Hampshire got nearly 64 percent of its revenue from property taxes — the highest rate of any state. Lodging tax of 9% easily Top 10 in the country. So as out-of-staters flock here for the tax free status to buy homes (they are cheaper, but higher taxes)

    NH is the worst state to retire to unless you're rich but have a small home! As stated, it's reliant on property taxes. If your income drops, as in retirement for instance, your taxes remain high and keep increasing yearly. Even if your income drops to "zero" you'll still owe just as much in taxes! New Hampshire's tax system is the most unfair system on the planet.

Lower Tax States to Consider

PA

Pennsylvania does not tax its residents' retirement income. It is one of only two states, and the only state on the East Coast, that considers pension income completely tax exempt.

The Keystone State also has the lowest flat tax rate in the country at just 3.07 percent. Although, it has the highest gasoline tax in the country.

States with Highest taxes - IL, CA, NY, NJ, MN, VT

California, New Jersey and Vermont, which have a state income tax, are ALSO high property tax states.

IL is worst

Illinois does not tax retirement income (for now).

CA

NY

NJ

  • NJ has Income taxes high
  • Does not tax social security or pensions (ironically its state pension/benefits are nearly bankrupting state!)
  • Terrible property taxes - I am in NJ and it is NOT the income tax that is a problem, it's the real estate tax.
  • Higher 7% sales tax ( clothes and food is exempt, but not toilet paper).
  • High Gas Prices now - Used to have one if the lowest gas prices, but the last two governors put an end to that adding high gas taxes.

HI

  • Hawaii does not tax qualifying distributions from following (need to verify?) employer funded pension plan federal civil service retirement military pension state or county retirement system Social Security benefits

MN

VT


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