What’s the State of Your State Taxes?
It Depends on the State
All fifty states and the District of Columbia impose taxes at different rates and on different sources of income. Some states maintain reciprocal agreements with other states, usually neighboring ones, whereby they agree not to tax some income from those states.
If you’re contemplating a move to a new state, or buying property or starting a new job in another state, it’s a good idea to know what you can expect to pay in taxes in that state. First, you’ll want to research income tax rates in your new home state or the state in which you’ll work. Many states provide this information online at their department of revenue website.
Second, it’s also important to know how income taxes are applied in the state. Some states impose income tax on any level of earnings in the state, while others require filing only after your income reaches a certain level. This level may relate to your total earnings or to the specific earnings within that state.
You’ll want to see whether reciprocal agreements exist, which allow nonresidents to avoid paying tax in the state in which they work. Instead, they typically pay tax to their home state, even on earnings from other states.
If you begin working in another state, your resident state (the state where you live) may allow you to take a credit for taxes paid to the state in which you work.
The State You’re In
When moving to a new state, it’s important to be aware of how or if your new state imposes an estate tax. According to the Tax Foundation, fourteen states and Washington, D.C., impose estate taxes, while six have an inheritance tax.
There are many different estate tax rates and exemptions amongst the states. While the federal estate tax exempts estates of less than $5.49 million in 2017, the thresholds imposed by the states are very different and vary from state to state.
If you’re planning to purchase property in another state, you should be aware that property taxes can vary considerably. States use varying rates and means of calculating the tax. It should be noted that some states have programs to help lower income or older residents.
Understanding the Tax Impact
There are other sources of income, such as social security benefits and investment income that may be taxed differently, depending upon which state you are moving to. Your tax professional can help you understand how your tax obligations are likely to be affected by moving to, or purchasing property or working in, another state.
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