If your goal is to lower your overall tax burden, you need to understand exactly how you're getting taxed.
Otherwise, you could end up trading a high income tax for an even higher sales tax. These include: Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, and Rhode Island. “ What Happens When You Earn Income in Other States? The Internal Revenue Service isn't the only tax entity holding its hand out for a piece of your paycheck. SIGN UP NOW. Janet Berry-Johnson is a CPA with 10 years of experience in public accounting and writes about income taxes and small business accounting for companies such as Forbes and Credit Karma. Nevertheless, Texans’ overall tax bite is still one of the lowest in the U.S., with the state ranking 18th. All citizens of Alaska receive an annual payment from the Before you plant a "For Sale" sign on your lawn and begin packing your bags to move to one of these tax-free states, keep in mind that they still need to raise revenue to function and they have to "Alaska Department of Revenue Permanent Fund Dividend Division. " By reviewing the specific taxes a state imposes, you can have a better idea of whether moving to a different state will truly reduce your taxes. MENTAL FLOSS. You must understand all the quirks to the local tax law before you can truly compare your potential tax burden in different states. Tonya Moreno is a former writer and tax expert for The Balance, specializing in taxes at the state level.
States without an income tax often make up for the lack of these revenues in other ways, such as through higher property taxes, sales taxes, fuel taxes, and other taxes. As of January 2020, some states charge a lesser sales tax on food items, including: “New Hampshire Department of Revenue Administration. Before 2016, Tennessee taxed income from investments, including most interest and dividends, but not wages. Property taxes are also higher than in most states, with the net result being an overall tax burden of 8.18% of personal income. The state's 6% Hall tax rate is being reduced by 1% increments each year until the tax is eliminated in 2021. And when all of New Jersey's local taxes are averaged out, it actually works out to a negative number: -0.03%. “Missouri Economic Research and Information Center. If you don't plan on owning a house, for example, you might not have to worry about higher property taxes. It's a percentage of total receipts from goods sold and services rendered within the state. In fact, New Jersey has taken steps to address this, exempting Salem County—which abuts the state line—from collecting New Jersey's 6.625% sales tax. Likewise, many Chicagoans go outside the city for their purchases. The Internal Revenue Service isn't the only tax entity holding its hand out for a piece of your paycheck.
Janet Berry-Johnson is a CPA with 10 years of experience in public accounting and writes about income taxes and small business accounting for companies such as Forbes and Credit Karma.7 States Without an Income Tax and an 8th State on the WayFind Out Which States Collect Income, Sales, Estate, Inheritance, and Gift TaxesFind Out Which States Are the Most Tax-Friendly for RetireesHighest and Lowest County Property Taxes in 2019—Where Do You Want to Live?Get a List of States Without an Estate Tax or an Inheritance TaxShould You Charge Your Customers Out-of-State Sales Tax?Do You Live in a State That Won't Tax Your Lottery Winnings?Paying Too Much for Property Taxes? Alaska is the only other state to ever take legislative steps to eliminate an existing income tax. It will take only 2 minutes to fill in. For the tax year 2020, the rate is 1%. Their reasons for nixing income taxes could be driven by their ideals for tax policy, as an incentive to attract new residents, or due to an increase in revenue from another source.