The amount an individual pays or is able to save in taxes depends on several factors, ranging from their filing status and the number of dependents they claim to their adjusted gross income. Other independent elements, such as their health conditions, employment status and wealth-building vehicles also have an impact on their obligations to the Internal Revenue Service. However, tax laws levied by states can also play a significant role in the amount households pay out each year, and for those planning on making a move or relocating for retirement, it can be helpful to know how tax laws differ across the country.
For instance, the Tax Foundation recently published a list of the top states that offer the most flexible and advantageous benefits for residents. Wyoming, Nevada, Florida and South Dakota placed high in the analysis because these three states do not impose an individual income tax. Alaska also ranked high for having no individual income tax and no state-level sales tax.
Other states, however, ranked considerably lower on the list for maintaining complex guidelines, high rates or non-neutral taxes, the foundation found. For instance, California made headlines when it increased its top individual tax rate to 13.3 percent, and New York and New Jersey have tied in imposing high individual, sales, property and unemployment rates in the country.
Unfavorable rates can cut into residents' savings
Individuals should always be aware of their particular state's tax structure, because it may affect everything from their ability to save sufficient for retirement to how their nest egg earnings are taxed. The National Center for Policy Analysis (NCPA) recently released a calculator to help Americans compare their potential liabilities and savings by the area in which they currently reside. Pamela Villarreal, who is a senior fellow for the non-profit organization outlined a few scenarios to demonstrate the differences.
For instance, if a 40-year-old man earning $100,000 a year moves from California to Alaska, he will have an additional $4,213 a year to spend every year for the rest his life, Villarreal told Fox Business. If the funds are saved, this the amount total roughly $351,700, which is equal to more than three times his annual income, she added.
Individuals who have recently moved or are planning on moving might benefit from speaking with a tax preparer to learn more about their state's tax codes. Understanding the rates and different types of taxes that may be imposed can help families better plan financially over the course of a year.
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