Americans worried about their income tax rate are moving to states like Florida in increasing numbers. 2017’s Tax Cuts and Jobs Act introduced a $10,000 filing limit on state and local tax deductions (SALT).
Florida is one of the few states in the nation without a state income tax. The climate is favorable for Florida business taxes as well. People living in high cost of living states like California and New York can potentially save money if they set up their primary residence out of state. Last year, more than 63,000 New York transplants moved to Florida.
“It took a few months for taxpayers to realize the dollar implications – until they actually filed their tax returns this year… It quantified the impact of the loss of the SALT deduction when people saw it in front of their eyes on their tax return,” an executive at Friedman LLP told FOX Business.
The problem is so severe New York officials are performing residency audits. You’re exempt from state taxes if your home is somewhere else. People splitting their time between Florida and New York need to be able to demonstrate that their real “domicile” is in the sunshine state.
“If you’re a high earner in New York and you move to Florida, your chances of a residency audit are 100 percent,” Barry Horowitz, a partner at the WithumSmith+Brown accounting firm, told NBC. “New York has always been aggressive. But it’s getting worse.”
Residents living in New York City pay a 12.7 percent local and state income tax rate. The richest one percent pays 46 percent of the bill. New York also imposes a large estate tax on residents. Estates worth more than $5.5 million are taxed at 16 percent.
“Tax the rich, tax the rich, tax the rich… We did. Now, God forbid, the rich leave,” New York Gov. Andrew Cuomo said in February.
Americans are free to move to a new state. The problem arises when New York residents remain in New York but pretend they’re living in Florida.
“It’s about proving where you really live, where your heart is,” Horowitz explained. “You have to show you’ve truly cut ties to New York, and that the things that are most near and dear to you are in Florida.”
The residents who truly move to Florida can potentially save a significant amount of money. In New York, 401ks and private pensions are taxable as well. Economists have determined that money goes further in Florida. If someone makes $100,000 a year in New York, the “amount would be equivalent to only $87,000. In Florida, the same $100,000 is worth roughly $101,000. Tally up the totals and it is easy to understand why so many people flee New York for Florida.
Some analysts believe that migration is going to continue. New Yorkers aren’t the only residents facing high taxes. California is facing a mass exodus of the rich as well. Florida, Texas, and Nevada are all income tax-free states.
“Nevada has long been the recipient of those California refugees,” said Greg McBride, of BankRate.com. “And more recently, Texas, because they also have no state income tax. Florida certainly holds that same appeal for Californians seeking warm weather, reasonable property values and a reduced tax burden.”
Businesses have some of the same incentives to switch states. However, it’s more difficult for a large operation balancing employees and investors to make the move. It’s easier to set up the company in a tax-friendly state, to begin with.
Florida officials are well aware of their state’s financial attractions. They actively work to recruit new businesses and individuals. Both parties in the state’s government have expressed interest in maintaining the state’s financial plan.
Moving to Florida has long been thought of a way to get a financial break. The thought is gaining traction in some financial circles as taxes grow higher and wages increase.