When Are Quarterly Taxes Due For Freelancers And Self
Sarah is a staff writer at CNET, covering personal finance. She previously contributed stories about money, health, and parenting to The New York Times, The Seattle Times, and The Washington Post. She once bought a car on eBay.
Dan is a writer on CNETâs How-To team. His byline has appeared in Newsweek, NBC News, The New York Times, Architectural Digest, The Daily Mail and elsewhere. He is a crossword junkie and is interested in the intersection of tech and marginalized communities.
Courtney Johnston is an editor for CNET Money, where she manages the teamâs editorial calendar, and focuses on taxes, student debt and loans. Passionate about financial literacy and inclusion, she has prior experience as a freelance journalist covering investing, policy and real estate. A New Jersey native, she currently resides in Indianapolis, but continues to pine for East Coast pizza and bagels.
Self-employed workers and freelancers donât have taxes withheld, so theyâre required to pay estimated tax payments throughout the year.
Why it matters
Paying quarterly estimated taxes can help you avoid penalties â and a huge tax bill â when filing your return with the IRS.
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What Are State Income Taxes
State income taxes are levied on the amount of income you earned during a particular tax year and paid to the state in which you live. Some states charge a flat tax rate, while others use a progressive or graduated tax rate. The Center on Budget and Policy Priorities explains that education and healthcare are the two largest spending categories state income tax revenues fund.
Most Americans will need to file both a federal and a state income tax return.
States With The Lowest Personal Income Tax Rates
Only eight states have no personal income tax:
In addition, New Hampshire limits its tax to interest and dividend income, not income from wages.
Among the states that tax income, Pennsylvania’s 3.07% flat tax ranks the Keystone State as the 10th lowest in the nation for 2021.
Low personal income tax rates can be misleading a lack of available tax deductions, for example, can raise the effective rate you pay. The Retirement Living Information Center states that figuring your total tax burden, including sales and property taxes, can give you a more accurate reading on affordability, especially if you’re on a fixed income. However, these states with the lowest taxes on income can be a good place to start looking for a more affordable location.
TurboTax Tip: Personal income tax rates do not tell the whole state tax story. The states vary in their personal income tax floors, deductions, exemptions, credits, and definitions of taxable income. Sales and property taxes also affect the states affordability.
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Why Do Some States Charge No Income Tax
State income tax is set at the state level, not the federal level, so it’s entirely up to state lawmakers. Their reasons for not having income taxes could be driven by their ideals for tax policy, as an incentive to attract new residents, or because they derive revenue from another source. For example, state income tax in Alaska was repealed after an oil boom in the 1970s. The overwhelming majority of the state’s revenue comes from oil industry activity. Alaska decided that it could receive most of the revenue it needed from the oil industry, so the state no longer requires taxes on residents’ incomes.
Is It Beneficial To Move To A State Without Income Tax
Yes and no. The more you earn and the higher the tax rate in your state, the more you can potentially save by moving to an income tax-free state.
However, moving to a state with no income tax isnt always beneficial. Every state needs money to fund public schools, build and maintain roads, pay state employees, and fund other projects and programs. If the state doesnt get that money through state income taxes, it typically collects it from other taxes, such as property taxes or sales taxes.
For example, say you live in Massachusetts, which has a flat income tax rate of 5%, and your taxable income for the year is $120,000. That would translate into a tax bill of $6,000. If you moved to Florida, which has no state income tax, you could avoid that state income tax liability.
Heres another example, Nevada doesnt have an individual income tax. However, it has a state sales tax rate of 6.85%, which places the state at #7 on the list of U.S. states with the highest sales tax rates.
Plus, cities and counties can tack on their own local sales tax to that rate. In Nevada, the average local tax adds an extra 1.38% to the state sales tax, for a combined rate of 8.23%. In Clark County, Nevada, where Las Vegas is located, the county tacks on an extra 1.53%, for a combined rate of 8.38%.
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States With No Income Tax : Which States Can Save You The Most
Almost everyone hates paying taxes, but what can you do, as the old adage says, there are only two certainties in life: death and taxes. Well, you can avoid some legally by moving to a state with no or a very low state income tax rate.
For this list, we ranked the States based on their state income tax rate, state-based sales tax rate, corporate income tax rate, average home value, average annual household income, and cost of living.
The ranking is based on the average annual household income equalized based on the cost of living in that stateless personal taxes. We also accounted for annual property taxes by subtracting from the equalized household income the effective property tax based on the median home value.
How The 9 States With No Income Tax Stack Up
Americas largest state is also considered one of the most tax-friendly. When Alaska repealed its personal income tax in 1980, it began to tax companies involved in oil and gas production at high rates to generate revenue. The states mean effective property rate is 0.98%, and Alaskas overall state and local tax burden is 5.8%, the lowest in the nation. On the downside, Alaska is remote and expensive in other ways. U.S. News & World Report ranks Alaska an overall 47 out of 50 on its affordability list, making it the fourth-lowest ranking state in the country. Contributing factors include higher-than-average housing costs and a steep cost of living relative to median family incomes. Most residents can receive an annual stipend, the Alaska Permanent Fund Dividend, of up to $2,000, which might help offset some costs.
This southern state is a popular retreat for vacationers and retirees alike. Florida generates most of its revenue from state and local sales tax and tuition through state universities. This makes for an overall state and local tax burden of 8.8%. While cost of living might not be a deal-breaker for most people, Floridians may still have to contend with a competitive housing market and prices. U.S. News & World Report ranks the state at 41 out of 50 for housing affordability.
Note: State, local and property tax data come from tax policy nonprofit the Tax Foundation and is for the 2019 calendar year, the most recent year for available data.
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Refund Of Erroneous Withholdings
Q. My company moved its office from Delaware to Ohio last year. I had an employment contract and the company paid me according to this contract, although my employment was terminated this year. They have taken Delaware State income tax out of my payments for part of this year. I would like to know under these circumstances why they continue to take out Delaware state tax and what if any tax liability I have, considering I do not live in Delaware and have not worked in Delaware this year. If there is any tax liability, please provide me details of why and tell me how to calculate Schedule W, which clearly shows there is no apportioned Delaware income when no days are worked in Delaware for a non-resident.
A. You must file a non-resident tax return to receive a refund of erroneously withheld Delaware income taxes if you did not live or work in the State of Delaware at any time during the taxable year.
You must attach to your Delaware return certification from your employer that:
What If You Earn Income In Other States
You must still report income earned in other states on your home state tax return if you live in a state that does levy an income tax, even if that income is earned in one of the tax-free states. It works both waysif you live in a tax-free state and earn income in a state that does tax earnings, you must file a non-resident return in that state, even though you don’t live there.
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Tax Rates Imposed In The Most Recent Year
Minimum Tax Rate. States with lower minimum rates score better. The minimum rates in effect in the most recent year range from zero percent to 2.10 percent .
Maximum Tax Rate. States with lower maximum rates score better. The maximum rates in effect in the most recent year range from 5.4 percent to 20.93 percent .
Taxable Wage Base. California, Florida, and Tennessee receive the best scores in this variable with a taxable wage base of $7,000in line with the federal taxable wage base. The state with the highest taxable bases and, thus, the worst score on this variable, is Washington .
States That Do Not Tax Retirement Income
States vary widely in the way they tax retirement income so location is an important consideration in financially planning for retirement. Some states dont levy income states on any sort of retirement income, while others tax IRA and 401 distributions, pension payouts and even social security payments like ordinary income. Income taxes are just part of the story, however, as some states with low or no income taxes have high property, sales and other taxes. Consider working with a financial advisor when you are planning for retirement to make sure you avoid any unnecessary taxes.
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Can State Income Tax Rates Change
Yes, state legislatures can vote on income tax laws and they can be altered from tax year to tax year. For example, North Carolinas flat income tax was reduced from 5.49% in 2018 to 5.25% for 2019. Heres another example: Tennessee is phasing out its Hall Tax and will repeal its income tax completely beginning in 2022. Its important to keep up to date on state tax laws where you work and live so you know how they affect you.
Total Tax Burden: 574%
Before 2016, Tennessee taxed income from investments, including most interest and dividends but not wages. Legislation passed in 2016 included a plan to lower taxes on unearned income by 1% per year until the tax was eliminated at the start of 2021. To make up for the shortfall, Tennessee levies high sales taxes and the highest beer tax of any state in the union at $1.29 per gallon.
With full implementation of the new legislation, Tennessee expects to attract retirees who depend heavily on investment income. The states total tax burden is 5.74%, the second-lowest in the nation. In the affordability category, Tennessee ranks 17th overall, and on the U.S. News& World Report Best States to Live In list, it ranks 29th.
In 2019, at $9,868 per pupil, Tennessee ranked just above Texas in terms of education spending in the southern U.S. It also did a better job of fairly distributing its school funding than the Lone Star State did, earning the Equality State a C in 2015.
At $7,372 per capita, Tennessee ranked 39th in terms of healthcare spending in 2014. The state hasnt received an official letter grade for its infrastructure yet, although the ASCE did note that 4.4% of its bridges are structurally deficient and 276 of its dams have a high hazard potential.
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Sales Tax Rate By State
45 US states charge sales tax. According to the 2016 report on sales tax, Oregon, Montana, Alaska, Delaware, and New Hampshire do not have a sales tax. Of the five states, Alaska and Montana allow for the collection of a local tax. However, Alaskas local authorities have capped local taxes below 2%, meaning the highest tax that can be charged in the state is 2%. The average local tax in Alaska as of 2015 is 1.76%.
The five states with the highest local taxes are Tennessee, Arkansas, Alabama, Louisiana, and Washington. These five states charge sales taxes of 9.45, 9.26, 8.91, 8.91, and 8.89%, respectively. The prices of goods and services in these five states are generally higher compared to the prices of the five states that do not charge sales tax. The high sales tax is attributed to additional local taxes charged by various counties and municipalities within these states.
Measuring The Impact Of Tax Differentials
Some recent contributions to the literature on state taxation criticize business and tax climate studies in general. Authors of such studies contend that comparative reports like the State Business Tax Climate Index do not take into account those factors which directly impact a states business climate. However, a careful examination of these criticisms reveals that the authors believe taxes are unimportant to businesses and therefore dismiss the studies as merely being designed to advocate low taxes.
Fishers conclusion holds little weight because the five indices serve such dissimilar purposes, and each group has a different area of expertise. There is no reason to believe that the Tax Foundations Index, which depends entirely on state tax laws, would rank the states in the same or similar order as an index that includes crime rates, electricity costs, and health care , or infant mortality rates and the percentage of adults in the workforce , or charter schools, tort reform, and minimum wage laws .
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Individual Income Tax Rate
The rate subindex compares the states that tax individual income after setting aside the five states that do not and therefore receive perfect scores: Alaska, Florida, South Dakota, and Wyoming. Tennessee, Texas, and Washington do not have an individual income tax, but they do tax S corporation incomeand Texas and Washington tax LLC incomethrough their gross receipts taxes and thus do not score perfectly in this component. Nevada has a low-rate payroll tax on wage income. New Hampshire, meanwhile, does not tax wage and salary income but does tax interest and dividend income.
Top Marginal Tax Rate. California has the highest top income tax rate of 13.3 percent. Other states with high top rates include Hawaii , New York , New Jersey , Oregon , Minnesota , Vermont , and Iowa .
States with the lowest top statutory rates are North Dakota , Arizona , Pennsylvania , Indiana , Ohio , Michigan and Louisiana , Colorado , and Utah . Alabama, Kentucky, Mississippi, and New Hampshire all impose a top statutory rate of 5 percent. Illinois and Kansas, which previously boasted rates below 5 percent, both adopted rate increases in recent years.
Number of Brackets. The Index converts exemptions and standard deductions to a zero bracket before tallying income tax brackets. From an economic perspective, standard deductions and exemptions are equivalent to an additional tax bracket with a zero tax rate.
These 15 States Have The Highest State Income Tax
States with the highest income tax rates may not sound appealing, but keep in mind that many states use a graduated income tax structure. This means that residents don’t pay the highest income tax rate on all of their income.
The highest state income tax rates are as follows:
Note that these are the top tax rates for those states. Some of these use a progressive tax structure, meaning that people in certain income brackets might pay lower percentages. or only pay the maximum amount on a portion of their income. For example, New York’s highest rate of 10.9 percent is only on income above $25 million. For individuals earning under $215,400, the top rate is just 6.85 percent.
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Which States Dont Tax Retirement Distributions
Twelve states do not tax retirement distributions. Illinois, Mississippi, and Pennsylvania dont tax distributions from 401 plans, individual retirement accounts , and pensions. The remaining nine states that dont levy a state tax at all are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Alabama and Hawaii also dont tax pensions but they do tax distributions from 401 plans and IRAs.
What Is The Income Tax Rate
The federal income tax is a progressive tax, which means that the more income you earn, the more you’re taxed. The tax rate is divided into brackets, and you pay taxes based on the brackets your income falls into. For example, the 2022 tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. If your taxable income is $45,000 in 2022 and you’re a single filer, you would pay 10% on your income up to $10,275, 12% on $10,275 to $41,775 in income, and 22% on your income over $41,775.
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