What’s the State of Your State Taxes?
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When you hear the word “taxes,” you may think of the returns you file with the federal government each April. But state and local taxes also can add up to a significant amount. In fact, state and local taxes — income, property, sales and others — can run between about $2,750 and $7,900 per person annually, according to the Tax Foundation. Further, these calculations can quickly become unwieldy, so it’s important to have a grasp of the ins and outs.
It depends on the state
The 50 states and the District of Columbia impose different rates of taxes on different sources of income. Some states have agreements with other states, usually neighboring ones, under which they agree not to tax some income from those states.
Before moving to a new state, or purchasing property or accepting a job in another state, it pays to have some idea of the taxes you can expect to pay. To start, you’ll want to review income tax rates in your new state or the state in which you’ll work. Many state departments of revenue provide this information online.
Along with tax rates, you’ll want to know how income taxes are applied. This is particularly important if you work, even part-time, in a state other than your state of residence. Some states apply what’s often referred to as the “first day rule.” You may owe income tax on money earned in the state from the moment you set foot within its borders.
Other states levy income taxes or require filing only after you hit a threshold — either in absolute dollars or as a percentage of your overall income.
You’ll want to check for reciprocity agreements, which allow nonresidents to avoid some state income tax in the state in which they work. Instead, they typically remit taxes to their home state, even for earnings from other states.
If you begin working in another state, remember to give the tax regulations of your home state another review. You may be eligible for a tax credit in your state based on taxes paid to another state.
The state you’re in
If you’re moving across state borders, you’ll want to check estate tax regulations in your new home. According to the Tax Foundation, 14 states and Washington, D.C., impose estate taxes, while six have an inheritance tax. Maryland and New Jersey have both.
Both estate tax rates and exemptions can vary widely from each other — and from the federal estate tax. Whereas the federal estate tax exempts estates of less than $5.49 million in 2017, the states that impose estate tax have different thresholds, and those amounts vary widely.
Are you planning to purchase property in another state? Property taxes also can vary significantly, as states use different rates and ways of calculating the tax. What’s more, some states have programs to help lower-income or older residents.
Understanding the tax impact
The list of potential state taxes extends to other sources of income, such as Social Security benefits and investment income. Contact us and we can help you determine how your tax obligations are likely to be affected by moving to, or purchasing property or working in, another state.