Can my state taxes really be 6x my federal?

[Brook2]

The $1500 sidewalk repair fee has nothing to do with state or federal tax of any kind. I don't know why that's assigned to the property owner, but I know my sister got hit years ago so I don't think it's uncommon.

It was just a side rant. Maybe that is why there's a big turn over in city council this year and 2 people already quit. There is a loss of logic in how the city spends money.

 

[RunningBum]

If anyone raises a fuss about my small fed tax bill these days, I can hit them with what I've paid over my lifetime. From 1994-2022 (I don't have good records before then) my overall fed income tax rate is 27.5%, and my state rate 6.8%, even with 6 pretty high income years in a no-tax state and 10 years of retirement with no earned income.

 

[Koolau]

It was just a side rant. Maybe that is why there's a big turn over in city council this year and 2 people already quit. There is a loss of logic in how the city spends money.

Elected officials spending other people's money messes with their natural frugality IMHO. I see it here in Paradise. At a time when our infrastructure is (literally) crumbling, we can't seem to spend tax payer money fast enough on make work projects like the Rail to Nowhere. In 10 years, the whole thing will likely come to a screeching halt when our salt air chews through the concrete pylons and steel rails. Our Aloha Bowl - built ca 1984 - rusted away and can't be fixed. BUT, they are anxious to build another new one. YMMV

 

[Koolau]

If anyone raises a fuss about my small fed tax bill these days, I can hit them with what I've paid over my lifetime. From 1994-2022 (I don't have good records before then) my overall fed income tax rate is 27.5%, and my state rate 6.8%, even with 6 pretty high income years in a no-tax state and 10 years of retirement with no earned income.

I sincerely hope that means you had a very high income. That is actually frightening.

 

[someguy]

If anyone raises a fuss about my small fed tax bill these days, I can hit them with what I've paid over my lifetime. From 1994-2022 (I don't have good records before then) my overall fed income tax rate is 27.5%, and my state rate 6.8%, even with 6 pretty high income years in a no-tax state and 10 years of retirement with no earned income.

Nice income — averaging about 3/4 mil a year for nearly three decades or about $21m.

 

[RunningBum]

Nice income — averaging about 3/4 mil a year for nearly three decades or about $21m.

Nope, not even close. A few big years where I exercised stock options with the highest years at 37.5% and 35.3% tax.

 

[someguy]

Nope, not even close. A few big years where I exercised stock options with the highest years at 37.5% and 35.3% tax.

Oh, are you talking about marginal rates? I assumed "overall fed income tax rate" meant effective, which unless you've got a really unusual situation would require income in the high six figure range -- say $700-$800K AGI -- to hit a 27-28% effective fed rate.

 

[RunningBum]

Oh, are you talking about marginal rates? I assumed "overall fed income tax rate" meant effective, which unless you've got a really unusual situation would require income in the high six figure range -- say $700-$800K AGI -- to hit a 27-28% effective fed rate.

No, I'm not talking about marginal rates. Effective rate. I don't know why I posted, because I don't like sharing my numbers. I used total fed tax / taxable income. I thought people were using that instead of AGI. If I use AGI it drops to 24.9%.

I think you are forgetting that tax rates used to be higher. https://www.irscalculators.com/tax-calculator only goes back to 2005, and my highest years were earlier, but $750K AGI ($740K taxable income) all from wages, for a single person in 2005 had an effective fed income tax rate of 31.08%. And I'm not including SS or Medicare tax. But that's beside the point because my income was uneven and nowhere close to a $750K average. My marginal rate in the high years was 39.6%.

I maxed out my 401K but there was very little else I could do to reduce or defer the rest of my income those years. Even with fed+state taking nearly half of my exercised stock options I happily focused on the wealth I was able to keep. And back to my point, I've paid enough taxes that I don't have to feel bad that I've set up my finances to pay very little in taxes now.

That's the last details I'm giving of my situation.

 

[someguy]

I think you are forgetting that tax rates used to be higher. https://www.irscalculators.com/tax-calculator only goes back to 2005, and my highest years were earlier, but $750K AGI ($740K taxable income) all from wages, for a single person in 2005 had an effective fed income tax rate of 31.08%.

You're right -- my mistake on that -- was just using a current year calc and forgot just how much they've changed. Went back and looked at my own and my highest % years were nowhere near my highest income. Also helped in my case by the switch from mostly W2 to mostly other income and the additional savings options that came with.

 

[BlueberryPie]

I had never given any thoughts to how State taxed LTCG, and I guess I had always assumed it was the same as Federal. Unfortunately I now learned that LTCGs are taxed as ordinary income.

 

[anothercog]

This is not surprising. California income taxes are ridiculous. I give a lot of thought to moving out of California but not sure where we would want to go. I love our temperate weather but ill have to work an extra two years just to be able to afford the taxes in retirement.

 

[dheb]

My 2023 taxes were 0 to the feds and about $1200 to my state. How do we figure out how many times higher the state tax is over my federal tax? Pretend the federal tax bill was $1 and go from there?

 

[anothercog]

No, I'm not talking about marginal rates. Effective rate. I don't know why I posted, because I don't like sharing my numbers. I used total fed tax / taxable income. I thought people were using that instead of AGI. If I use AGI it drops to 24.9%.

I think you are forgetting that tax rates used to be higher. https://www.irscalculators.com/tax-calculator only goes back to 2005, and my highest years were earlier, but $750K AGI ($740K taxable income) all from wages, for a single person in 2005 had an effective fed income tax rate of 31.08%. And I'm not including SS or Medicare tax. But that's beside the point because my income was uneven and nowhere close to a $750K average. My marginal rate in the high years was 39.6%.

I maxed out my 401K but there was very little else I could do to reduce or defer the rest of my income those years. Even with fed+state taking nearly half of my exercised stock options I happily focused on the wealth I was able to keep. And back to my point, I've paid enough taxes that I don't have to feel bad that I've set up my finances to pay very little in taxes now.

That's the last details I'm giving of my situation.

I don’t think you need to feel bad about anything. When I was young I was raised by a single mother with a deadbeat dad. We relied on welfare for a few years to get by. My mom pursued higher education as have I. That investment has reaped multiples. I have had a very successful career and have paid a relative fortune in taxes to the benefits we received. What comes around, goes around.

 

[Koolau]

This is not surprising. California income taxes are ridiculous. I give a lot of thought to moving out of California but not sure where we would want to go. I love our temperate weather but ill have to work an extra two years just to be able to afford the taxes in retirement.

Where to go? Pick almost any state and your state taxes will be lower. I've pointed out before that (for retirees) Hawaii is almost a tax haven - depending on how your income is structured. W2 earnings can be hit pretty hard, but passive stuff like pensions and other employer payments as well as SS are a real bargain, tax-wise. I'm sure there are plenty of other states with much lower state taxes while still offering a decent life-style.

Heh, heh, do reserve your U-Haul early. I understand they are hard to find.

 

[Koolau]

I don’t think you need to feel bad about anything. When I was young I was raised by a single mother with a deadbeat dad. We relied on welfare for a few years to get by. My mom pursued higher education as have I. That investment has reaped multiples. I have had a very successful career and have paid a relative fortune in taxes to the benefits we received. What comes around, goes around.

My dad was able to get a small-business loan at lower interest because he was disabled. I've been paying that back in taxes for almost 60 years now. I think the loan was about $1000 in the early 1950s. I think I'm paid up, but the Feds don't think so.

 

[anothercog]

Where to go? Pick almost any state and your state taxes will be lower. I've pointed out before that (for retirees) Hawaii is almost a tax haven - depending on how your income is structured. W2 earnings can be hit pretty hard, but passive stuff like pensions and other employer payments as well as SS are a real bargain, tax-wise. I'm sure there are plenty of other states with much lower state taxes while still offering a decent life-style.

Heh, heh, do reserve your U-Haul early. I understand they are hard to find.

DW would certainly prefer Hawaii over Florida but looks to be almost as bad as CA for me tax-wise. I don't have a pension. My income in the earlier years of retirement will primarily be from a non-qualified deferred comp plan, qualified dividends and capital gains from a taxable account. In later years it will be social security and 401k/IRA distributions.

Social Security is also not taxed in CA but there is no lower rate for qualified dividends or LT capital gains.

 

[cathy63]

DW would certainly prefer Hawaii over Florida but looks to be almost as bad as CA for me tax-wise. I don't have a pension. My income in the earlier years of retirement will primarily be from a non-qualified deferred comp plan, qualified dividends and capital gains from a taxable account. In later years it will be social security and 401k/IRA distributions.

Social Security is also not taxed in CA but there is no lower rate for qualified dividends or LT capital gains.

Most states tax QDIV and LTCGs as ordinary income.

I guess it depends on how much taxable income you expect to have in retirement, but California has a progressive tax system, so most people find that if their income is in the low six figures or less it's actually a low tax state.

I have a return setup in TaxSlayer that includes all the states that have income tax*. I modified the income just now to $50K of deferred comp and $50K of LTCG. Here's how the states compare using that income profile. If you have some other income numbers you'd like to look at, let me know. It's quite easy to change the income in the Fed return and have the state numbers show up automatically.

AGI $100,000
Federal -$2,239
AL -$4,408
AR -$2,351
AZ -$1,808
CA -$2,316
CO -$1,581
CT -$4,507
DC -$4,546
DE -$4,332
GA -$4,681
HI -$5,994
IA -$3,772
ID -$3,683
IL -$4,710
IN -$4,557
KS -$4,071
KY -$4,232
LA -$2,926
MA -$4,560
MD -$6,737
ME -$3,783
MI -$3,613
MN -$4,283
MO -$3,193
MS -$3,170
MT -$3,947
NC -$3,539
NE -$2,239
NJ -$2,641
NM -$2,152
NY -$4,285
OH -$2,290
OK -$3,698
OR -$7,056
PA -$3,070
RI -$2,646
SC -$2,552
UT -$3,853
VA -$4,207
VT -$2,387
WI -$3,295
WV -$4,028

* Each state return is a full-year resident return for a married couple in their 50s filing jointly with no dependents. All the Fed income is taxable in the states (i.e. none of it is from treasuries or munis). For the states that ask about county and school district, I make a random selection. For the states with a health insurance penalty, I say everyone is covered all year. For the states that have local taxes, I don't enter anything special, so it's probably based on whatever county I randomly selected.

 

[anothercog]

Most states tax QDIV and LTCGs as ordinary income.

I guess it depends on how much taxable income you expect to have in retirement, but California has a progressive tax system, so most people find that if their income is in the low six figures or less it's actually a low tax state.

I have a return setup in TaxSlayer that includes all the states that have income tax*. I modified the income just now to $50K of deferred comp and $50K of LTCG. Here's how the states compare using that income profile. If you have some other income numbers you'd like to look at, let me know. It's quite easy to change the income in the Fed return and have the state numbers show up automatically.

AGI $100,000
Federal -$2,239
AL -$4,408
AR -$2,351
AZ -$1,808
CA -$2,316
CO -$1,581
CT -$4,507
DC -$4,546
DE -$4,332
GA -$4,681
HI -$5,994
IA -$3,772
ID -$3,683
IL -$4,710
IN -$4,557
KS -$4,071
KY -$4,232
LA -$2,926
MA -$4,560
MD -$6,737
ME -$3,783
MI -$3,613
MN -$4,283
MO -$3,193
MS -$3,170
MT -$3,947
NC -$3,539
NE -$2,239
NJ -$2,641
NM -$2,152
NY -$4,285
OH -$2,290
OK -$3,698
OR -$7,056
PA -$3,070
RI -$2,646
SC -$2,552
UT -$3,853
VA -$4,207
VT -$2,387
WI -$3,295
WV -$4,028

* Each state return is a full-year resident return for a married couple in their 50s filing jointly with no dependents. All the Fed income is taxable in the states (i.e. none of it is from treasuries or munis). For the states that ask about county and school district, I make a random selection. For the states with a health insurance penalty, I say everyone is covered all year. For the states that have local taxes, I don't enter anything special, so it's probably based on whatever county I randomly selected.

Cool. What would it be for 140k in deferred income and 80k in QDiv/LTCG?

 

[cathy63]

Cool. What would it be for 140k in deferred income and 80k in QDiv/LTCG?

Now you are getting into the income range where CA is one of the high tax states.

AGI $220,000
Federal -$27,231
AL -$4,368
AR -$7,726
AZ -$4,808
CA -$12,480
CO -$6,861
CT -$11,700
DC -$14,746
DE -$12,084
GA -$11,581
HI -$15,305
IA -$11,369
ID -$10,643
IL -$10,650
IN -$10,137
KS -$10,913
KY -$9,632
LA -$8,016
MA -$5,960
MD -$16,826
ME -$12,635
MI -$8,473
MN -$12,629
MO -$9,150
MS -$9,170
MT -$11,447
NC -$9,239
NE -$11,337
NJ -$4,297
NM -$7,445
NY -$12,237
OH -$6,742
OK -$9,397
OR -$17,542
PA -$3,991
RI -$8,609
SC -$9,384
UT -$10,230
VA -$11,107
VT -$10,236
WI -$9,816
WV -$10,171

 

[Wile E. Coyote]

Geesh! You make me glad I live in Oregon.

 

[SecondAttempt]

Not to mention my city charged me $1,500 to fix the sidewalk in front of my house that I didn't ask for. Isn't that what taxes are supposed to pay for?

Why did you break the sidewalk?

 

[SecondAttempt]

You are lucky you don't live in Hawaii. We're going to have to pay for a rail boondoggle. Honolulu built a rail that was designed for 119,600 boardings per day, but was estimated to get about 84,000 per day when the line is shortened. Actual ridership is 2000-3000 per day. Taxpayers get to pay for the excess, even those of us who live on different islands and get no benefit!

 

[perinova]

It was just a side rant. Maybe that is why there's a big turn over in city council this year and 2 people already quit. There is a loss of logic in how the city spends money.

Sidewalk repair is very annoying to me as well. City as easement on your property but will charge you for the repair
That is a state law, but also a sore subject to everyone.
I am aware of complaints that the sidewalk is sometimes degraded by city work and they will still charge you for the repair.

sidewalk-cal

 

[Brook2]

This is not surprising. California income taxes are ridiculous. I give a lot of thought to moving out of California but not sure where we would want to go. I love our temperate weather but ill have to work an extra two years just to be able to afford the taxes in retirement.

After going to a Kaiser medicare seminar today - I realize I wouldn't want to move to any state that does not have Kaiser. So I guess one benefit of living CA is Kaiser (I know they are in some other states too). I've been with them for over 30 years. They are affordable, and interested in keeping me healthy. I can email my doctor, have online appointments, and now just learned they are including YMCA membership. Most healthcare stories I hear about other insurance companies are terrible...it's as if they punish you for trying to use their services. I helped a friend go to common preventative health care (test) appt that BlueCross said was supposed to be free, but when we got there, the 3rd party contractor demanded $150. My friend didn't expect to be paying for anything. I can see why people get enraged with health insurance companies. Kaiser lives in a whole different universe.

 

[Wile E. Coyote]

After going to a Kaiser medicare seminar today - I realize I wouldn't want to move to any state that does not have Kaiser. So I guess one benefit of living CA is Kaiser (I know they are in some other states too). I've been with them for over 30 years. They are affordable, and interested in keeping me healthy. I can email my doctor, have online appointments, and now just learned they are including YMCA membership. Most healthcare stories I hear about other insurance companies are terrible...it's as if they punish you for trying to use their services. I helped a friend go to common preventative health care (test) appt that BlueCross said was supposed to be free, but when we got there, the 3rd party contractor demanded $150. My friend didn't expect to be paying for anything. I can see why people get enraged with health insurance companies. Kaiser lives in a whole different universe.

BCBS used to be practically free. I had it with several employers over the years. Ever since ACA entered the playing field the benefits have gotten worse every year and the cost of the insurance has gone up.