Before you move to another state or province, you need to be aware of how much you'll be paying in state tax. This is particularly true if you're moving to try to save money. Differences in your tax rate can affect your household budget. Don't forget, though, that sales tax and property tax will also change and should be considered as you plan your move.
Facts About State Taxes
Revenue is collected by the government in several different areas, in particular through sales tax, income tax, property tax, estate tax, excise tax, licensing tax, etc... In some states you may have to pay into all the coffers or just some; it varies from state to state.
As you consider changes to your tax rate if you move states, keep in mind where your tax dollars go. Perhaps your income tax will decline, but property taxes are higher than where you currently live; maybe the dollars are being invested locally in better infrastructure or maybe with lower state income tax, your child's education may not be as well supported. Just some pros and cons to consider before you check the tax tables and make your decision.
State Income Tax
There are a few states that don't collect income tax, with some of the larger states being Florida, Texas and Washington. Other income tax-free states include, South Dakota, Alaska, Nevada and Wyoming. While income tax isn't collected, the tax dollars must be generated somehow, so always look for other ways that the government may collect, such as gambling taxes in Nevada.
Six states have a flat rate on all income, including Indiana, Illinois, Colorado, Massachusetts, Pennsylvania and Michigan. The rates vary from a low 3% in Illinois to 5.3% in Massachusetts.
Generally, forty one states collect revenue via income tax. Two states, New Hampshire and Tennessee, collect taxes on income derived from dividends and interest only, while thirty five states based your income taxes on federal returns.
For more information on income tax rates and tax preparation, check out the Guide to Tax Planning. This site also provides great tips for saving money on your tax return. For the latest tax tables, including comparison between states, see The Federation of Tax Administrators.
State Sales TaxAll but five states collect sales tax on purchased items. These exemptions include Alaska, Delaware, Montana, New Hampshire and Oregon. Depending on the state, you'll either be paying an additional tax on top of the state sales tax or simply a flat rate on goods. States such as Connecticut, Hawaii, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Rhode Island, Vermont, Virginia, and West Virginia have a flat rate schedule, while the remaining states allow the county and/or city to add taxes in addition to the state sales tax. Depending on where you live, you may be paying more for goods than if you drove to the next city or county.
States also vary in what items are considered taxable. Some will include clothing, while excluding certain types of food. Find out before you move by checking your local state government website.
State Property Tax
While property taxes are collected at the local level, by counties, cities and towns, the rate is capped by the state government, meaning that the local government cannot exceed the maximum. This also means that rates will vary by location, so do your research first to find the lowest rates in the state. Remember, though, that property taxes are the primary means of generating revenue for local use, with much of it going towards education, roads and often emergency services.
Most states do have property tax relief programs in place for those who are struggling to keep up. Again, programs vary from state to state, so it's worth looking into if you think you may qualify for assistance, credit or a rebate.
Some of the highest state taxes in the country are located in the Northeast, such as New Jersey, New Hampshire, New York, Connecticut and Massachusetts. Lowest rates belong to the Southern states which include Arkansas, Mississippi, West Virginia, Alabama and Louisiana. Again, for more information on your particular state, go to the official government page found here.