According to U-Haul's 2023 growth index, Americans flocked to Texas and Florida and that, for the fourth year in a row, the state of California had the largest net loss of one-way movers. One of the reasons behind this move may be due to the fact that Florida and Texas are no income tax states. While having no income tax seems cost friendly, there are some down sides that Americans should keep in mind before making the big move.
Yahoo Finance Reporter Rebecca Chen joins Yahoo Finance to help give insight into the pros and cons of moving to no income tax states.
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
- Well, if you're doing your taxes and wondering why you are paying so much, specifically in state taxes, well, you're not alone. Many Americans are making the move to no income tax states in 2023 to save that money. So here with the details on that is Yahoo Finance's Rebecca Chen. So Rebecca, talk about the move to some of these no income states, and perhaps some of the downside that people should also be aware of that comes with this.
REBECCA CHEN: That, well, there's some downsides but I just want to point out that in 2023, the official stats are in. Americans love moving to Florida and Texas. These are the two states with the most domestic immigration, according to the US, according to the US Bureau. And Texas added nearly 500,000 residents, new residents, in just 2023, and Florida added nearly 400,000. And these are big numbers.
And on the flip side, we can see that states like New York and California actually lost most of their, most residents, in 2023. And when we compare the characteristics of these states, you can see that Florida and Texas are no income states, whereas New York and California are states with some of the highest income tax rates in the nation. So there is definitely a trend of people moving to these where they can pay a little bit less taxes. So when we were doing-- yes?
When we were doing our reporting, when we were doing our reporting, we wanted to figure out just the actual number of how much you actually can save from when you move to say from California to Texas. And what we found is, if you make the median salary in California, which is about $92,000, you actually, right off the bat, to a no income state, you save around $3,000 to $5,000 in one year without just doing anything, just because once you pay your federal taxes you're done. That's it. No more state income taxes for you.
And of course, this goes to show that the more you make, the more you actually save when you make that move. So we do know that California is a progressive tax system, so the rate goes as high as 13.3%, and this is just on top of the federal taxes you pay.
- Rebecca, what are some other cost of living factors that taxpayers should account for?
REBECCA CHEN: So there is one big thing that we also wanted to look at. Let's say if you're not paying state income taxes, what are you actually paying? Because states, they have to generate their revenue from somewhere. And that somewhere is usually property taxes. And what we have seen is that the average US home owners pay about 0.99%, almost 1% of property taxes in their state. But in a state like California, you're actually only paying 0.71%.
So it almost balances itself out. You're paying more in income taxes, but then lower in property tax. And going back to the previous sample I've used, in Texas, you're actually paying 1.6% on your home value. So Texas home owners are nearly paying more than double of what California home owners are making. And of course, the argument is then California homes are so much more expensive. That is true, but once you buy a home in California, you're paying taxes on the appraised value that is limited in growth every year.
So in a way, just before you go to a different state, you've got to watch what you're paying, not just what you're paying in income taxes, but also, if you do end up buying a house, what you are paying in the property taxes, and how that can mark up in value every year. Because that could just wipe out all of your savings, if you're not careful.
- A lot of factors to consider there. Rebecca Chen, as always, thanks so much.
