State tax credits and excise taxes
In 2023 we see a record-number of remote workers in the US. Along with the growth in remote workers, there’s a growing trend of people moving to take advantage of lower tax rates or lower cost of living, and ultimately working in a different state than their employer.
In the previous editions of moving to a different state than your employer, we looked at which states have the highest and lowest income taxes, personal property taxes, and cost of living, along with the logistics of filing state taxes when you first move.
Today, we’ll talk about state tax credits, often overlooked excise taxes, and reiterate our top advice for remote workers moving to/working in a different state than their employer.
State Tax Credits
Many states offer tax credits or incentives for certain activities, such as energy-efficient home improvements or charitable donations.
Research what tax credits or incentives that may be available in your new state and take advantage of them whenever possible. State tax credits available should be listed on the official state website for your new chosen home state.
Review your estate plan as well. Depending on the state you’re moving from and to, you may need to update your estate plan. This includes reviewing your will, trusts, and other estate planning documents to ensure they’re up-to-date and compliant with the laws of your new state.
State Excise Taxes
Aside from state income tax, state property tax, and general sales tax, additional taxes or “excise taxes” may be imposed in certain states or even at the local level that may affect your buying power.
For example, a soda tax that can range from 1 – 2 cents per ounce (and often applies to other sweetened beverages than just “soda”) in places like Boulder, CO and Philly, PA can add up over time for those who regularly consume sweet drinks.
In addition to excise taxes imposed by each state (which varies widely) on each gallon of alcohol, some states and counties also impose a special sales tax on the final purchase price of alcohol (separate from general sales tax). On top of that, over a dozen states control the sale of all liquor with state-run stores, preventing competition from driving down prices for consumers.
Have you ever booked a hotel room and felt shocked at the total amount due after taxes? There is often additional tax imposed on hotel rooms, rental cars, restaurant meals, and sales tax in areas that tourists often visit.
While travel taxes may not come to mind when you’re considering a state to move to, it can impact you when you decide on a staycation at a local boutique hotel or take a roadtrip for a weekend getaway somewhere within your state.
More excise taxes
Gas taxes, tobacco and cigarette taxes, motor fuel taxes, marijuana taxes (where legal), and of course various taxes on business income and activity for business owners, may impact your bottom line.
The Tax Foundation website has more details on excise taxes by state, and state tax collections per capita to give you a glimpse at the average tax burden per person (including those too young to file/pay taxes).
Reminders Before You Move Out Of State
Understand Tax Rates
Before you move to a new state, make sure you understand the differences in state income tax, property tax, and sales tax rates in your old and new state. Consider the cost of living as well, which includes factors like housing costs, utilities, and transportation expenses
For more details on these topics, refer to Part 2 of Moving to a Different State than Your Employer (link).
Update your Tax Withholdings
Tell your employer well ahead of the move to give them ample time to update your records in the payroll system.
If you are self-employed, make sure you adjust your withholdings (or estimated quarterly tax payments) so that you are putting aside the proper amount of money for taxes based on your new income tax rate, and to the appropriate state/municipality.
Once you move, establish your state of domicile right away by updating your driver’s license or state ID, car registration, and any insurance policies you hold.
With so many layers of taxes to consider, it can be overwhelming to compare two different areas. And as mentioned before, tax rates and costs of living can vary within a state and may come down to the city/county level.
But despite the research required, complexity of taxes, and the massive effort an out of state move requires, the US Census Bureau data from 2022 shows a trend of Americans leaving high income tax states and making their way to low income tax states. And, we believe this is a trend that will continue for years to come.
Have you moved to a new state, or are considering moving to a new state, to save money and increase your buying power? If so, we’d love to hear in the comments.
For tax questions on your particular situation, please consult a tax professional.
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