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Originally Posted On: https://www.empower.com/the-currency/life/move-a-mile-save-a-million-news
Move a mile, make a million
Empower research shows that 3 in 5 Americans believe money can buy happiness – though there’s much more to the story than net worth. It turns out that a little can go a long way, and incremental financial gains can have a massive impact on Americans’ well-being.
One way to maximize those incremental gains: tax optimization strategies, which are an important consideration in overall wealth and lifestyle planning.
Around two-thirds of Americans are interested in relocating during retirement, according to Empower research, with the top destinations being near the beach (32%) and in the mountains or countryside (22%).
Nearly 1 in 5 Americans (16%) want to move to a less expensive state, and those expenses include state taxes. You don’t have to move thousands of miles to benefit from “tax cliffs” – or variations in tax rules when you cross a border. Each state’s tax code is a complex system with many moving parts, but generally speaking, there are financial opportunities with some relocation decisions.
Income tax cliffs
Where are these “tax cliffs,” and when does it make sense to move over the line?
Nine states – Arkansas, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming – leave wages and salaries untaxed.i All of these locations gained population from neighboring states in 2022.i Of course, other kinds of state taxes may at least partly compensate for the lack of an income tax.
For instance, Nevada has no income tax, while California, Oregon and Arizona tax income at top rates of 13.3%, 9.9% and 4.5%, respectively.ii You can make a similar comparison for New Hampshire versus Massachusetts, Maine and Vermont, as well as the other zero-income-tax states and those that surround them. The height of the “tax cliffs” ranges from 13.3% for Nevada-bound Californians taxed at the top rate to 2.9% for those who move from North to South Dakota.iii
Pennsylvania, with a top rate of 3.1%, differs from the rates of New York, New Jersey, Ohio, West Virginia and Maryland,i where savings for top earners could range from 0.9% (for Ohio) to 7.8% (for New York).
Image: Tax Foundation
Property tax cliffs
Not all states levy income taxes, but property taxes are everywhere – and often pose a bigger cost for taxpayers.iv Yet it’s hard to compare property tax rates across localities due to differences in how they’re calculated, how properties are assessed, and the prevalence of individual credits and exceptions.v
The most straightforward way to compare property taxes may be to simply look at the dollar amount that homeowners pay. According to Census and Tax Foundation data, the top 20 U.S. counties in terms of property tax bills are in northern New Jersey (11 counties), six counties in and around New York City, Marin and Santa Clara County in northern California, and Falls Church in northern Virginia.vi
All are marked by extremely expensive homes.vii Moving to a cheaper home, perhaps in a neighboring state or even a neighboring county, is one way to shrink your property taxes.
Moving on
If you’re considering relocating, say, for retirement, but still deciding on your destination, local taxes are definitely one factor to keep in mind. So, if you live near a tax cliff, moving a few miles can add up to savings.
