DE vs. PA - Does this sound right? (Wilmington, Dover: credit, relocating)

[Sassygirl18]

As I have posted on a couple other threads, hubby and I live in NJ and are seriously considering relocating to escape the horrendous property taxes. We want to stay in the general area, though, so we are taking a serious look at DE as well as PA. For awhile now I have assumed that DE would be the most affordable of the two, since the property taxes are shockingly low, and about half what we would pay in PA. But then I read something about DE having a much higher personal income tax, so I did some research into this. It turns out that for our income level, we would pay 5.95% of our income to DE for income tax and if we live in PA, it would be 3.07%.

So the next thing I did was do a breakdown of how much total we would pay in taxes in both states including income tax, property tax (which I estimate to be $2000 for DE and $4000 for the PA suburbs we are looking at) and sales tax (which of course I estimated at $0 for DE and about $200/year for PA, based on a rough estimate of the taxable goods we might buy in a year). And then I compared both states to where we currently live in Cherry Hill, NJ. This is what I came up with:

TOTAL TAXES

DE: $6,849
PA: $6,840
NJ: $13,423

So my question to you is, does this sound right? Am I missing something? Are DE and PA really about equal in tax burden when everything is taken into consideration?

[Charley]

Originally Posted by Sassygirl18

As I have posted on a couple other threads, hubby and I live in NJ and are seriously considering relocating to escape the horrendous property taxes. We want to stay in the general area, though, so we are taking a serious look at DE as well as PA. For awhile now I have assumed that DE would be the most affordable of the two, since the property taxes are shockingly low, and about half what we would pay in PA. But then I read something about DE having a much higher personal income tax, so I did some research into this. It turns out that for our income level, we would pay 5.95% of our income to DE for income tax and if we live in PA, it would be 3.07%.

So the next thing I did was do a breakdown of how much total we would pay in taxes in both states including income tax, property tax (which I estimate to be $2000 for DE and $4000 for the PA suburbs we are looking at) and sales tax (which of course I estimated at $0 for DE and about $200/year for PA, based on a rough estimate of the taxable goods we might buy in a year). And then I compared both states to where we currently live in Cherry Hill, NJ. This is what I came up with:

TOTAL TAXES

DE: $6,849
PA: $6,840
NJ: $13,423

So my question to you is, does this sound right? Am I missing something? Are DE and PA really about equal in tax burden when everything is taken into consideration?

If you calculated your Delaware income tax correctly, then your numbers might be correct. If you used 5.95% for your total income, that is incorrect. 5.95% is the highest tax bracket, for amounts over $60,000. The amounts under $60,000 are subject to lower percentages.

In short, you will pay $2,952 for the first $60,000 and THEN 5.85% for everything above $60,000. Remember not to count Social Security or Pensions up to $12,500. Then, once you do the calculations, give yourself a tax credit of $110 for every dependant claimed on your taxes.

So --- if you make $86,500 and have two dependants - here's the math:

Subtract $6,500 for the standard deduction. (It could be more if you itemize.) That leaves $80,000 taxable.

Tax on the first $60,000 = $2,952
then on next $20,000 = $1,190 ($20,000 x 5.95%)
then personal tax credit = $ -220 ($110 x 2)
----------------------------------------
Total income tax due = $3,922

Does this help?

Charley

[Sassygirl18]

I think I calculated DE income tax incorrectly because I calculated 5.95% on our entire income, not only on the amount above $60K. I didn't realize that's how it worked. Thanks for explaining it to me.

We don't have any dependents (unless you count cats Do we still get the $6500 standard deduction?

Thanks Charley!

[rockky]

Sassy, I assume you used info such as I'm posting with this link:

Delaware

RETIREMENT INFORMATION, IRA TOPICS, PENSION EXCLUSIONS, SOCIAL SECURITY BENEFITS
Q. I'm planning to move to Delaware within the next year. I am retired. I am receiving a pension and also withdrawing income from a 401K. My spouse receives social security. What personal income taxes will I be required to pay as a resident of Delaware? I also would like information on real estate property taxes.

A. As a resident of Delaware, the amount of your pension and 401K income that is taxable for federal purposes is also taxable in Delaware. However, person's 60 years of age or older are entitled to a pension exclusion of up to $12,500 or the amount of the pension and eligible retirement income (whichever is less). Eligible retirement income includes dividends, interest, capital gains, net rental income from real property and qualified retirement plans (IRS Sec. 4974), such as IRA, 401 (K), and Keough plans, and government deferred compensation plans (IRS Sec. 457). The combined total of pension and eligible retirement income may not exceed $12,500 per person age 60 or over. If you are under age 60 and receiving a pension, the exclusion amount is limited to $2,000.

Social Security and Railroad Retirement benefits are not taxable in Delaware and should not be included in taxable income.

Also, Delaware has a graduated tax rate ranging from 2.2% to 5.55% for income under $60,000, and 5.95% for income of $60,000 or over.

For information regarding property taxes, you can access the Delaware Development Office web page at State of Delaware - Delaware Economic Development Office (DEDO) and do a search on Real Estate Taxes or you may contact the Property Tax office for the county you plan to live in. You may contact the Property Tax offices at the following phone numbers:

Property Tax - New Castle County (302) 323-2600
Property Tax - Kent County (302) 736-2077
Property Tax - Sussex County (302) 855-7760

--------------------------------------

As you can see, only you, with taking into consideration your personal data, can calculate your situation. It depends on your age, the amount of your income, and other variables. Delaware taxes pensions with such a screwy step system that it is very different for each person.

The taxes are much lower on my DE property than on my PA property. No doubt about that.

While living in PA, my pension was not taxed. It was taxed while I was living in DE. I am under age 60, so I got nailed for nearly the full amount.

I am widowed, and some of my monthly income is from investments. I am taxed higher on this amount in DE.

Frankly, I found it all very confusing. However, based on your personal situation, you could be correct with your numbers.

Oh, one more thing. DE has no sales tax. Fact.

But DE has a gross receipts tax which is a burden to the business owners.

Gross Receipts Taxes



GROSS RECEIPTS TAXES



Delaware does not impose a state or local sales tax, but does impose a gross receipts tax on the seller of goods (tangible or otherwise) or provider of services in the state. Unless otherwise specified by statute, the term "gross receipts" comprises the total receipts of a business received from goods sold and services rendered in the State. There are no deductions for the cost of goods or property sold, labor costs, interest expense, discount paid, delivery costs, state or federal taxes, or any other expenses allowed.

Business and occupational gross receipts tax rates range from 0.096% to 1.92%, depending on the business activity. In instances where a taxpayer derives income from more than one type of activity, separate gross receipts tax reporting is required. The type of business activity additionally determines whether gross receipts tax is remitted monthly or quarterly.

-------------------------------

At some point these taxes are most likely passed on to the consumer. People aren't aware of it because there isn't a percentage amount listed on their purchase receipts. It is, without a doubt, less than the taxes in other areas, but keep in mind that PA does not tax "necessities". As a quick example, clothes are not taxed. However, I think swim wear may be taxed. It can get weird, and may not always be consistent per each vendor. In general, it works. Food from the grocery stores is not taxed.

Although DE does not have sales tax, they do have a tax on cars.

Some local municipalities in DE have an income tax. I was just informed (hope they know what they are talking about ) that Wilmington has a 4% income tax. That would compute out to nearly a 10% income tax. Dover does not have this tax. You may want to check that stuff when you are looking at properties.

Just tossing out some general things to consider.

[rockky]

Whoops! I bet you aren't retired, Sassy! DUH! Sorry.

My post is worthless in regard to your question.

Maybe I'll just leave it there in case someone else could use the link info.

[rdlr]

Originally Posted by rockky

Sassy, I assume you used info such as I'm posting with this link: ............
The taxes are much lower on my DE property than on my PA property. No doubt about that. .................
Just tossing out some general things to consider.

Rockky - What an informative post! I'm sure this is good information for sassy, since you own properties both in PA and DE, allowing you to make a real life comparison.

About gross receipts tax, and business. In my business, I am permitted to earn $240,000 per quarter in gross receipts. After that, I must pay (x 0.00307) of that in gross receipt tax (each quarter). Also, regarding the business end of this, I must pay a self-employment tax...quite large. Small businesses from my point of view, are penalized in Delaware, as evidenced by the many, complicated tax forms needed to be filed, and the many small businesses going in and out every year. I don't know if other states are different.

Sassy.....I always like to add a disclaimer.....I am not an accountant. I would suggest you present your individual questions, regarding your specific scenario, to a professional, licensed accountant.

[rockky]

Originally Posted by Delly

..... Small businesses from my point of view, are penalized in Delaware, as evidenced by the many, complicated tax forms needed to be filed, and the many small businesses going in and out every year. I don't know if other states are different.

Delly, I totally agree!! My son is a small business owner in DE. He has had one issue after another. Even when he tries to get answers to his questions from the state, he's told that they don't know the answers. They passed a law last year that cost him a lot of money with no benefits to him personally. He was just 'a bit' angry.

I got a call from someone (DE based business) the other day asking for help with a tax issue in DE. They were hoping to be networked to someone who could help them. Seems no one at any state agency could give them any answer beyond, "We don't know, but you need to pay it. Just do what they do in adjoining states." Ummmmm....PA and MD don't collect the tax. ?????

DE is business friendly. It just seems you need to be a medium to large business. Or you could be a huge business and incorporate in DE....like so many do. It is cheaper and safer in a legal sense. The courts seem to like the big guys in DE. Hummmm? Wonder why?

Sorry for the little drift, Sassy.

[Charley]

Originally Posted by Sassygirl18

I think I calculated DE income tax incorrectly because I calculated 5.95% on our entire income, not only on the amount above $60K. I didn't realize that's how it worked. Thanks for explaining it to me.

We don't have any dependents (unless you count cats Do we still get the $6500 standard deduction?

Thanks Charley!

You and hubby (assuming there are two of you) each get $3,250 as a standard deduction for a total of $6,500. It could be more if you itemize but you'd need to consult with your tax advisor for details.

Charley

[rdlr]

Originally Posted by rockky

Delly, I totally agree!! My son is a small business owner in DE.
He has had one issue after another. Even when he tries to get answers to his questions from the state, he's told that they don't know the answers. They passed a law last year that cost him a lot of money with no benefits to him personally. He was just 'a bit' angry.

And, I'd like to add....whatever is on the website can be interpreted differently for each individual case. I think they like to keep us confused! I

[Sassygirl18]

Thanks, everyone, for all your input. It is very helpful.

No, we're not retired or retiring (wish we were!). Probably got 20 years before that.

Some local municipalities in DE have an income tax. I was just informed (hope they know what they are talking about ) that Wilmington has a 4% income tax. That would compute out to nearly a 10% income tax. Dover does not have this tax. You may want to check that stuff when you are looking at properties.

Does this mean that anyone who lives in Wilmington is charged an extra 4%, or do you mean that anyone who works in Wilmington pays an extra 4%?

Also...by WILMINGTON do you mean the city itself or the entire area (including the more suburban areas surrounding Wilmington). For example, areas like 19803, 19809, etc. Are they considered Wilmington?