Florida's Tax Haven Might Get Even Better

Florida's lack of an individual state income tax has always been a strong selling point for attracting new residents.  Tax reform may make that point even stronger.

New York, New Jersey, Minnesota and Connecticut have taxed their residents with state income tax rates ranging from 6.99% to 9.85%.  That hit was softened a bit because these residents could deduct their state and local taxes when calculating what they owe the federal government.

Now, however, the proposed new tax reform law, in addition to dramatically lowering federal income tax rates, eliminates the state and local tax deduction.  This means that the residents of the above states and over 35 other states, will be paying the same federal taxes than those of the few states such as Texas and Florida that do not have individual state income taxes.  Plus, they will continue to pay their state income taxes.

Who will this affect?  It is estimated that almost half the taxpayers in Maryland and New Jersey and one-third of New Yorkers take these deductions.  New York residents who itemize deduct and average of $21,000 for state and local taxes.  Without the deduction, they will pay the same federal tax as Floridians, as well as their state and local tax (which Florida residents do not pay).

A 2016 report from the Tax Foundation give the state and local tax rates for these states:  

Connecticut (6.99%),  Wisconsin (7.65%),  New York (8.82%),  New Jersey (8.97%), Minnesota (9.85%).