5 State Tax Considerations For Your Military Transition

Transitioning out of the military can be complicated. Deciding where to live is just one of many major decisions you will need to make. Make sure you fully understand the impact of state taxes on your decision - this could have a major impact on your decision!
Advertising Disclosure.

Advertiser Disclosure: The Military Wallet and Three Creeks Media, LLC, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet. For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked; however, this compensation does not affect how, where, and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner,” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings, or lists are fully comprehensive and do not include all companies or available products.

The Military Wallet and Three Creeks Media have partnered with CardRatings for our coverage of credit card products. The Military Wallet and CardRatings may receive a commission from card issuers.

Opinions, reviews, analyses & recommendations are the author’s alone and have not been reviewed, endorsed, or approved by any of these entities. For more information, please see our Advertising Policy.

American Express is an advertiser on The Military Wallet. Terms Apply to American Express benefits and offers.

Taxes can be a major consideration in your military transition planning.  As I outlined in a previous military pension article, your take-home pay can be up to 40% less than what you see on paper.  Federal taxes are obviously a significant part of that equation.  However, there are several ways in which state taxes (and local taxes) could play a part in your relocation decision.

State Tax Consideration #1:  State Income Tax

State income tax is probably the biggest consideration most people think about.  After all, state income tax can range from 0% to 13.3%, based upon your income tax bracket and which state you live in.  You can find more information on this state income tax resource page.  While most military personnel don’t expect to transition into a job where they’re paying into their state’s highest marginal tax bracket, it’s important to have a good estimate and figure out where you stand.

If you’re moving into a state with income tax, you may want to familiarize yourself with state tax returns.  Some states have a straightforward process for calculating tax liability (few deductions, tax tables, etc.).  Other states have a complicated process for:

  • Calculating taxable income
  • Determining deductions
  • Calculating tax liability

State Tax Consideration #2:  Local Income Tax

It’s not enough to think only about your state income tax, because you might live in an area where county or local income taxes are common.  For example, in New York City, a married couple filing a joint return earning $50,000 per year would be in the 3.591% tax bracket.  This is in addition to New York state taxes as well as federal taxes.  While there are relatively few cities that charge income tax, you should know what you’re getting into.

State Tax Consideration #3:  State & Local sales tax

Most states charge a sales tax, and many cities charge an additional sales tax as well.  There are a couple of things to look at here:

What items are taxed: Usually, taxes are not levied on items like groceries and other consumer ‘must-have’ items.  Also, most states will have tax holidays for special occasions, such as ‘back to school.’  However, if you indulge in things such as tobacco and alcohol, you might face stiff taxes as many municipalities look to make money from ‘vices.’  In some cities, the widely regarded sugar tax looks to start a similar trend for soda products and other ‘unhealthy foods.’

Tax deductibility: The IRS allows a taxpayer to deduct the greater of state & local INCOME tax or state & local SALES tax.  This is done by itemizing those deductions under Schedule A (taking the standard deduction disallows either tax for deduction purposes).  In states with zero income tax, this is a no-brainer…you can always take the sales tax.  However, for people with both sales & income tax, this might require calculation and tax planning on major purchases.

For example, a major furniture upgrade or entertainment system installation might warrant a close look at your tax situation.  In some circumstances, it could be worthwhile to look at the timing of a purchase to make sure you’re maximizing your tax deduction in the appropriate tax year.

State Tax Consideration #4:  Real Estate Taxes

Most municipalities have sort of real estate tax assessment, either at the local or county level.  A couple of considerations here:

If you’ve never owned a home before, you’ll usually find that estimated taxes are calculated by the mortgage company. You’ll then pay these into an escrow account, and the mortgage company pays taxes on your behalf.

Your real estate tax liability is calculated by the taxing authority. This is done by assessing the value of your home, then multiplying that assessment by the tax rate.

  • Many localities or states have homestead exemptions for military or veterans. For example, in Florida, this ranges from a $5,000 exemption (knocking $5,000 off the home’s assessment) for partially disabled veterans to a complete waiver of tax liability for 100% disabled veterans who meet certain criteria.  But you have to apply.
  • If your taxing authority has suddenly raised the assessment or tax rate for your property, you may find that your escrow payments might not be enough. You can challenge the assessment.  However, you should be prepared for your mortgage payments to go up in the following year if your mortgage company has to recoup the extra payments.
  • Once you pay your mortgage, you’re responsible for paying your real estate tax. Make sure you incorporate this into your planning.

You may deduct real estate taxes paid as an itemized deduction under Schedule A of your federal tax return. This is itemized separately from the sales OR income tax deduction (where you can only choose one).  However, there are cases where the standard deduction may be more beneficial than itemized deductions.  In this case, there is no real deductibility benefit for real estate taxes paid.

State Tax Consideration #5:  Personal Property Tax & Registration

Many areas also have a personal property tax, either at the county or local level.  Personal property taxes are usually charged against vehicles or other personal property that must be registered (ATVs, trailers, boats, etc.).  Personal property taxes can be levied in a number of ways:

  • Estimated fair market value
  • Weight or length
  • Type of equipment
  • Age

There may also be other registration requirements, such as annual vehicle inspections or emissions testing.  Without going into much detail, you may want to learn a little about how personal property works in the area you plan to relocate to.

Conclusion

While state and local taxes might not be the ‘deal-breaker’ in terms of helping you decide where to live, they are still worth looking at. You may decide that it makes sense to relocate halfway across the nation. Or, you may decide to stay local when you transition out of the military.

When it comes to budgeting your post-military life, you may find a significant impact in terms of total tax liability.  Simultaneously, with just a little research, you may also find tremendous tax planning opportunities. Taxes should only be one factor to consider among many.

About Post Author

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

Reader Interactions

Leave A Comment:

Comments:

About the comments on this site:

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

The Military Wallet is a property of Three Creeks Media. Neither The Military Wallet nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. of Veterans Affairs, the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at va.gov. The content offered on The Military Wallet is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.

Advertiser Disclosure: The Military Wallet and Three Creeks Media, LLC, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet. For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked; however, this compensation does not affect how, where, and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner,” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings, or lists are fully comprehensive and do not include all companies or available products.

Editorial Disclosure: Editorial content on The Military Wallet may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of  The Military Wallet.

Information from your device can be used to personalize your ad experience.