I currently live in NH with no income tax, and I'm looking to move into Vermont that has an income tax. We currently have no mortgage, no real deductions other than some charitable donations and currently have to pay about $6k in additional federal taxes every year when we do our returns. If we do move there, with our current jobs it looks like we are going to have to pay $17k-$18k in state income tax. Is it wrong to assume that we likely won't have to pay the extra $6k federal with the additional state income tax? For what is worth, we'll also more than likely have a mortgage that we can claim interest as a deduction as well.
Currently paying additional federal taxes every year and looking to move to a state with an income tax
byu/Needs_ADD_Meds inpersonalfinance
Posted by Needs_ADD_Meds
5 Comments
No. Federal tax is different than state tax. You still owe the feds the same amount.
You need to fill out your W-4 correctly so you are not under withholding.
Why have you had to pay $6,000 multiple times? This can possibly be corrected by adjusting your withholdings.
> Is it wrong to assume that we likely won’t have to pay the extra $6k federal with the additional state income tax?
Sorry…why do you think that the $6k for federal would just “go away” simply because you now have to pay State taxes?
Since the standard deduction is higher than your state and local taxes (SALT) then no it wouldn’t change anything about your federal taxes unless you had other deductions (new mortgage interest) to combine with the SALT deduction to get it higher than the standard deduction.
You’ll need to calculate with actual numbers and estimated mortgage interest to see which will be more advantageous.
No, paying state income tax doesn’t automatically make your under withholding on federal income tax issues go away.
You are paying “extra” because your payroll is having federal taxes under-withheld. It’s the amount you always owed, and isn’t related in any way to whether your state does/doesn’t have income taxes.
Typically the under withholding is a result of couples filling out their HR forms incorrectly, using information for only their job and not properly accounting for dual income. The IRS site has a calculator that will tell you the right numbers to use.