State Income Tax: not always perfect

[GenXguy]

By extension, there are states where it is much easier to live when you are poor. I recall a detailed state by state look at lifestyle and income source, I think it was done by an investment bank. It covered stuff like pension only, where FICA is taxed by states, all sorts of income and expense variations. Then it broadly put the states into buckets for different life stages and life styles. Quite the eye opener. It attempted to present an arc of optimization during earning, accumulating, saving, and spending profiles. It tried to include COLA during those phases. Then there was discussion around the impact of doing it the "hard" way.

FICA taxed by states? FICA is a tax, but not a state tax.

One problem there with putting states into buckets is that it varies a lot where you live in a state.

 

[Koolau]

Wishful thinking, but if FL added some income tax and it reversed the influx, and we started dropping in population that might make it a better place to live for those that stay. Less congestion!

I'm sure there are state advantages to the increasing population. Also, not all tax revenue comes from income tax. Obviously, FL has a lot of revenue from other sources though YMMV.

 

[Koolau]

I've mentioned before that we miscalculated how high our state tax (total) would be before we moved to the Islands. We thought they would be much higher. It's true that those who w*rk in the state pay high state taxes. BUT for those of us living mostly on retirement income (SS and Pension, etc.) our state taxes are quite reasonable. Also, real estate taxes are the bargain of the nation.

I assume that we aren't inundated by retirees because real estate is so expensive (also lots of people can't deal with being "stuck" on an Island 2500 miles from anywhere.)

I would put our weather as nearer perfect than most other states - but that's another discussion.

 

[pb4uski]

Interesting that this was just published by Tax Foundation about non-resident taxes. They rate VA as one the better states in that area.

https://taxfoundation.org/data/all/state/nonresident-income-tax-filing-laws/

Anyway, not sure what you mean by "partial year of residence". Are you talking about say a summer home residence, or moving during the year? The latter is done by every state, and the former by most states after X days or some other criterion if you are working.

I ran into this when I was working. I traveled a lot nationwide and as a result had income in many different states. Our timesheets had a state code so the firm could account for and report our income if it needed to be reported. One year I filed 9 state income tax returns, 8 were non-resident but I received a tax credit for taxes paid to other states on my resident state income tax return. Luckily, the firm provided TurboTax federal and as many states as we needed to make it less painful.

Typically, non-resident income is income attributable to that state... so rents from property located in the state, income from financial accounts with a home address of that state, etc. My mom lived in Florida (and later Texas) but had a commercial rental property in Vermont so she had to file a non-resident income tax return each year for that income and pay Vermont income taxes on that income.

We moved from Vermont to Florida in 2020 even though we had homes in each state since 2016. It was principally a matter of changing drivers licenses, car registrations, voting, addresses on financial accounts, banking, homestead declarations and also tracking time spent in Vermont and out of Vermont. Pretty easy. Not life changing savings but enough to make it worth the effort. Interestingly, the changes in Medigap, car and home insurance and difference in homesteading benefits pretty much netted to nothing so the net impact was getting rid of Vermont income tax.

Now we're moving from Florida to Texas to be nearer to the grandchildren, but the fact that Texas also has no state income taxes was a bonus.

 

[athena53]

I ran into this when I was working. I traveled a lot nationwide and as a result had income in many different states.

I'll never forget the greed of NJ in grabbing a share of income for the year after I moved out.

Worked from home in NJ after I started a new job from May, 2002 to June, 2003. Moved to KS in June, 2003. Got a bonus in 2004. They withheld NJ taxes on half of it. I asked why since I'd moved out the previous year. Apparently NJ considered it "theirs" because it was based on my work in 2003.

And I just learned that NJ now has an "exit tax" if you sell and leave the state- either 8.97 percent of the profit/capital gain you make on the sale of your home or 2 percent of the total sale price: whichever is higher.

I made a $200K profit when I sold. Darn glad I got out when the getting was good.

 

[Koolau]

My old state never chased me as a "resident" when I left, but since I got a $grand or so from the old family business residuals each year, I had to file in two states for several years. Cost me $couple hundred per year at the CPA. Bummer. Was glad when we finally killed off the INC.

 

[RetireBy90]

Anyway, not sure what you mean by "partial year of residence". Are you talking about say a summer home residence, or moving during the year? The latter is done by every state, and the former by most states after X days or some other criterion if you are working.

Just to explain, I was in the Army and claimed Nevada as my home of record since that is where I lived when entering Army. For my Army time, I paid no state income taxes and registered our cars in Nevada. When I retired I “became” Va resident and had to pay income taxes for that year with VA for that part ofThe year. Naive and I don’t recall the details but I paid istate taxes for more of the year than I had expected.

Another quick story, I assisted soldiers with preparing taxes and received training each year. One year the instructor, a JAG lawyer recounted a situation where service member was “assigned” to a unit in DC, they lived in VA, and wife worked in MD. All 3 claimed she had to pay income taxes to them.

 

[Chuckanut]

I would put our weather as nearer perfect than most other states - but that's another discussion.

Agreed. I constantly advise locals in my area who do not like living in a damp, cold, dark area of the country to move to Paradise ASAP.

 

[ychuck46]

I'm sure there are state advantages to the increasing population. Also, not all tax revenue comes from income tax. Obviously, FL has a lot of revenue from other sources though YMMV.

I've heard they have someplace near Orlando that brings in a lot of tourists and tax revenue. Not sure but I heard something to that effect

 

[pb4uski]

....Worked from home in NJ after I started a new job from May, 2002 to June, 2003. Moved to KS in June, 2003. Got a bonus in 2004. They withheld NJ taxes on half of it. I asked why since I'd moved out the previous year. Apparently NJ considered it "theirs" because it was based on my work in 2003. ...

I think that I would fight that one and file a non-resident return for 2024 excluding the bonus and seek a full refund of the amount withheld and if they process the refund then let them chase me if they want to.

Worst case if NJ prevails you can get at least take a state tax credit on your KS return.

 

[athena53]

I think that I would fight that one and file a non-resident return for 2024 excluding the bonus and seek a full refund of the amount withheld and if they process the refund then let them chase me if they want to.

Worst case if NJ prevails you can get at least take a state tax credit on your KS return.

I did get a credit on my KS return. The difference between paying taxes on it to KS or to NJ was probably minimal- I was just annoyed that NJ grabbed part of it.

And, since it was over 20 years ago now I think I'll leave it alone!

 

[pb4uski]

I did get a credit on my KS return. The difference between paying taxes on it to KS or to NJ was probably minimal- I was just annoyed that NJ grabbed part of it.

And, since it was over 20 years ago now I think I'll leave it alone!

Sorry, I read it as 2023 rather than 2003 and 2024 rather than 2004.

 

[Koolau]

Agreed. I constantly advise locals in my area who do not like living in a damp, cold, dark area of the country to move to Paradise ASAP.

Just tell 'em to bring a LOT of money unless they want to live under a blue tarp on the beach or under an overpass.

 

[threeonesix]

I have lived in Wichita Kansas twice and I think people leave because the weather is awful, there’s nothing to do and it’s really ugly. Pluses of course are that people are very nice and the COL is low. I think the Lawrence and KC areas are pretty but I never lived there.

Can't disagree with you there. If you're into the outdoors (like me) this is not a place for you. In regard to COL ... Wichita, Lawrence and KC have almost caught up to Colorado, albeit home prices. Everything else is the same or higher now. Taxes are ridiculous compared to median income. My sister in Denver has a house in Wash Park valued over 4 times higher than mine, and her property taxes aren't even half what I pay. It's probably time I think about moving back out to CO.

 

[threeonesix]

I may not have the exact numbers but they're pretty close IIRC: In Mass, 20% of kids age 25 to 35 plan on leaving the state.

Two of our own nephews moved out of Mass in January. In their case, the overall quality of life and COL was the issue. They each have two other friends who left before them and encouraged them to join them.

I don't know actual, current numbers in KS (nor would I likely believe anything or anyone who say they do) but in my particular case: I graduated with 135 in our class in 1989; by our 10-year reunion in 1999 only 23 of my classmates remained living in KS. 6 had passed away. For the reunion it was my job to gather mailing addresses and I was able to get them all, which is how I know only 23 remained in KS. By 2009 it was only 19, and by 2019 only 15. More had passed away, but most had simply moved. A lot to MO, OK and CO. The more people that leave KS the higher are our taxes. I'm on the city council here and it's shocking to me the number of people who don't understand that is a major cause of our higher taxation. We try to do things to get people to move to our town but everything gets voted down because residents don't want to spend more in order to lower taxes. It's depressing.

 

[meleana]

I live in a state with no income or sales . Low home and auto insurance. Property taxes can be high depending on the town.

According to Wallet Hub, my state has the second overall tax burden in the country next to Alaska.

 

[Ronstar]

Illinois does not tax retirement income. I'm a counselor for the AARP free tax return service. I've done so many returns this year where retirees pay "0" state tax on their retirement. They leave happy

We used to pay 0, but owed $114 in 2023. Sounds like a great deal until you factor in real estate taxes. My Illinois real estate taxes of $8k are about twice what we'd pay in other states.

 

[Koolau]

We used to pay 0, but owed $114 in 2023. Sounds like a great deal until you factor in real estate taxes. My Illinois real estate taxes of $8k are about twice what we'd pay in other states.

5 times what I pay for RE taxes.



Earned income can be charged at over 10%, but that's scaled and doesn't apply to most retirement income, thank goodness. Lots of other states out there.

 

[marko]

I think that many or most states lose a similar percentage of young folks, but some of it is countered by other folks moving in, as I did in MA several decades ago...

A study in today's Boston Globe shows that the bulk of those moving out are college educated, mid and high income earners.

" ....working age adults are leaving in droves....on net, Massachusetts lost an average of 22,631 people age 25 to 40 in 2021/22...the largest number of any age group and a marked increase over previous years..." (story behind paywall)

People might be still moving in, but it's not clear how many of them are replacing those educated, high earners.

 

[Koolau]

A study in today's Boston Globe shows that the bulk of those moving out are college educated, mid and high income earners.

" ....working age adults are leaving in droves....on net, Massachusetts lost an average of 22,631 people age 25 to 40 in 2021/22...the largest number of any age group and a marked increase over previous years..." (story behind paywall)

People might be still moving in, but it's not clear how many of them are replacing those educated, high earners.

Was curious so looked up this site: https://www.forbes.com/sites/kathar...ining-population-infographic/?sh=7fdc01865e13


It shows by state which are net gainers and losers of population. Keep in mind that some states do still gain population the "old fashioned" way, so it's not all just folks moving - it's also folks giving birth or dying.

I wasn't surprised to see that my state is losing population. For those w*rking, it's a tax nightmare. For those retired on benefits, it's not that bad at all. Young folks also leave to find w*rk that can use their higher education degrees. It's all a mixed bag, but state taxes certainly do play a role though YMMV.

 

[TheWizard]

We used to pay 0, but owed $114 in 2023. Sounds like a great deal until you factor in real estate taxes. My Illinois real estate taxes of $8k are about twice what we'd pay in other states.

Mine are $10k presently...

 

[Koolau]

Mine are $10k presently...

Heh, heh, I hope that's lake-front property! My view of the Pacific Ocean costs me about $1600/year in RE taxes. Bargain of the world if you ask me.

 

[Chuckanut]

I am curious. How many states that have a state income tax index the rates and other aspects of the tax to inflation?


I ask because we have a new state [-]income[/-] excise tax on capital gains over $250,000. But, the figure is not indexed to inflation so in real terms it goes down every year. My state representatives tactfully avoid mentioning that.

 

[marko]

Was curious so looked up this site: https://www.forbes.com/sites/kathar...ining-population-infographic/?sh=7fdc01865e13


It shows by state which are net gainers and losers of population. Keep in mind that some states do still gain population the "old fashioned" way, so it's not all just folks moving - it's also folks giving birth or dying.

Of course there's more to gaining or losing population. If your educated high earners are leaving and being replaced by more uneducated low earners thats not a true net gain.

Head count, yes but adding to the tax base and overall quality of life, maybe no.

 

[Flieger]

Of course there's more to gaining or losing population. If your educated high earners are leaving and being replaced by more uneducated low earners thats not a true net gain.

Just a reminder. Not all "educated" are high earners (re: need for student loan forgiveness), and not all "uneducated" are low earners (re: trades, CNC Ops, Maint Techs, etc).

Flieger