If you are considering moving, you may not think about taxes when you look at your possible destinations. However, if you have a large income or plan to retire soon, the state that you choose to move to could have a significant impact on your disposable income in the years to come.
No Income Tax
At publication, seven states have no personal income income tax at all. These are Alaska, Florida, Tennessee, Nevada, New Hampshire, South Dakota, Texas, Washington and Wyoming. If you live and work entirely in one of these states, you only have to worry about federal income taxes.
Interest and Dividends
Two states do not tax earned income, such as the wages reported on a W-2, but do tax interest and dividends: Tennessee and New Hampshire. New Hampshire taxes interest and dividends at a 5 percent rate and Tennessee taxes interest and dividends at 6 percent. Tennessee exempts people over age 65 who have less than $16,200 if filing a single return or $27,000 if filing a joint return. For example, if you live in Tennessee and have $34,000 of interest income, you would owe $2,040 of state income tax.
Social Security Income
When you file your federal income taxes, you may have to count up to 85 percent of your Social Security benefits as taxable income. However, 36 states and Washington, D.C., do not count Social Security as taxable state income as of publication. In addition to Tennessee, New Hampshire, Alaska, Florida, Tennessee, Nevada, New Hampshire, South Dakota, Texas, Washington and Wyoming, if you live in Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia or Wisconsin, you will not have to pay income taxes on your Social Security benefits, which can be a significant tax savings for retired individuals.
Just because you live in a state with no income tax does not mean that you will not have to pay state income taxes to another state. If your work takes you into another state, you may owe taxes to that state. For example, if you live in Texas but work in Oklahoma, you will likely owe state income taxes on the income earned in Oklahoma. However, any income you earn in Texas will not be taxed.
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