Studies show that gaining new skills as we age can improve memory, health, and longevity, and even help alleviate stress. According to some experts, more good news is that acquiring knowledge and aptitude throughout life can provide those advantages and more, regardless of the activity or subject. So, why not keep learning about taxes?
Of course, one reason to embrace lifelong learning about taxes is that taxation is a big part of the U.S. financial system — whether we like it or not. And while you may already know about key federal tax deductions and requirements, like how 401(k) contributions can lower taxable income and what required minimum distributions (RMDs) are, there are also lesser-known tax developments that can affect your finances. Keeping up with those is important, too.
For example, many states have recently enacted significant tax legislation. Depending on where you live, those tax changes will affect how much you pay for groceries, gas, splurges, and necessities or to keep your home in the case of property taxes. So, in the spirit of ongoing learning — about tax — here’s some information on recent state tax changes.
2023 Rebate Payments
- Last year, mostly due to revenue surpluses, more than twenty states sent billions of dollars in special payments to eligible residents.
- If you received a special payment from your state in 2022 and filed your 2022 federal tax return early, check with your tax preparer to see if you need to file an amended return. It's possible your payment was mistakenly reported as taxable income.
For 2023, several states, including Alabama, Georgia, Montana, and New Mexico, are issuing tax rebate payments to eligible residents. For example, Montana’s 2023 one-time tax rebates could be up to $2,500. However, the payment amounts and eligibility criteria differ by state.
If you believe you are eligible for a payment in these or other states but haven't received one, contact your state's Department of Revenue.
Lower State Income Tax for 2023
Several states decreased tax rates this year. For example, Arizona reduced its income tax rate to a flat 2.5% from a high of 4.5%. Idaho also changed its income tax rate to a flat tax of 5.8% (down from 6%). Indiana’s income tax rate was changed from 3.23% to 3.15%.
- Indiana’s tax cut was part of a $1.1 billion tax package. The state’s income tax rate will continue to fall, incrementally, to 2.9%, by 2027.
- The tax bill passed in Arizona contained close to $2 billion in tax cuts.
- Idaho’s historic tax cuts came amid a $900 million state revenue surplus.
Other states with lower income tax rates for 2023 include Iowa, Kentucky, Mississippi, Missouri, Nebraska, New York, and North Carolina. That is not an exhaustive list, so track your state's tax rates for potential new relief.
(If you live in Connecticut, for example, lower state taxes are coming in 2024.) Even slight tax rate reductions can save you money, especially if you receive traditional paychecks or have other taxable income.
In addition to lower income tax rates, some states are providing sales tax relief. For example, $1.3 billion tax legislation enacted in Florida offers tax exemptions on items like gas stoves and baby and toddler necessities.
Property Tax and Gas Taxes
State Property Tax Relief. And while property taxes are rising across much of the country, Pennsylvania extended the deadline to December 31 for its rent and property tax rebates of up to $975. Those tax rebates are available to eligible older adults 65 and over and for some widows, widowers, and people with disabilities. Also, property tax relief through a program called "STAYNJ," is coming for New Jersey homeowners age 65 or older.
State Gas Tax Increases. As often happens on July 1, gas tax increases became effective in several states, including California and Maryland, where residents already deal with expensive gasoline. Colorado, Illinois, Indiana, Iowa, Kentucky, Missouri, and Virginia also raised taxes on gasoline, on the first of July, just before the Independence Day holiday.
Expanded State Tax Credits
Several states have enhanced existing popular tax credits. For example, Colorado recently raised its electric vehicle tax credit to $5,000. When combined with the federal EV tax credit, eligible buyers can save up to $12,500 on a qualifying electric car. (Potential savings for Coloradans are even higher on electric trucks.) However, other states are implementing new taxes on EVs.
Hawaii and Colorado are increasing earned income tax credits. Eligibility and amounts for earned income credits in states vary. But, contrary to popular belief, earned income credits can be valuable not just for working families but for older adults with lower and middle incomes as well.
Federal Lifetime Learning Credit
And if you’re interested in more traditional lifelong learning, the aptly named federal lifetime learning credit (LLC) can help eligible taxpayers with tuition and related expenses. It's worth up to $2,000 per tax return, and taxpayers can claim the LLC for undergraduate, graduate, and professional degree courses, including courses to acquire or improve job skills. Visit irs.gov for more details.
Note: This item first appeared in Kiplinger’s Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.
