If you are living or planning to live in Florida, understanding its tax system nuances should be a part of your financial planning. As we dive into this discussion, expect a beginner-friendly, detail-oriented delve into what makes Florida's tax code unique - both in terms of benefits and challenges. We've wrapped up the most significant tax aspects, recent changes, and helpful tips. By the end, you will grasp a firmer standing on your 2024 tax obligations in the Sunshine State.
Let's dive in!
Floridians reap various tax benefits, the most distinct being the lack of State Income tax. But it doesn't end there. Florida also provides sales tax holidays, and homestead exemptions, and imposes reasonable corporate tax rates.
No State Income Tax: An Overview
Startling as it may sound to residents of other states, Florida does not impose a personal income tax on its inhabitants.
This advantageous provision is underwritten in the state's constitution, and it cannot be instated without the vote of the general populace. Regardless of your income bracket, you will not be subject to income tax if you reside in Florida.
Not having to worry about state income tax is a substantial benefit for both Florida’s workers and retirees, as well as individuals contemplating relocation to the state.
Florida's property tax rate stands at just under 1 percent, 0.98 percent to be precise.
This rate may differ slightly from county to county, but overall the state offers favorable property taxes compared to the national average. A potential homeowner must look into local property tax rates and pay attention to whether their desired county undergoes frequent reassessments, as this could hike up property tax down the line.
The state sales tax rate is 6%, however, groceries and prescription medicine are exempt.
Counties can also add a discretionary sales surtax ranging from 0.5% - 1.5%, bringing the average state sales tax rate to 7.02%.
Prescription drugs, certain grocery items, and many services are sales tax-exempt in Florida. Frequent events like the Hurricane Supplies Sales Tax Holiday and School Supplies Sales Tax Holiday further help residents save money.
Florida's corporate income tax rates are flat at 5.5% for most corporations with a caveat that corporations paying the alternate tax rate face a tax rate of 3.3%.
The relatively low and straightforward corporate tax is an appealing prospect for startups and businesses seeking to shift their operations to Florida. Notably, the amount paid depends on the federal taxable income; hence, businesses must consider their federal obligations when planning their tax strategy.
Moreover, subchapter S corporations, limited liability companies that choose not to be treated as a corporation, and sole proprietorships are not liable for the corporate income tax in Florida. This potentially relieves many small-sized businesses and self-employed individuals of additional tax burdens.
Although Florida does not have a state income tax, it is important to note that residents still need to pay federal income tax. Employed individuals have income tax withheld from their paychecks, while self-employed individuals are to pay estimated tax payments throughout the year or risk financial penalties. Both categories of workers submit an annual federal tax return.
Most Florida residents are taxed on all their income, including interest, dividends, and capital gains, at the federal level.
However, specific categories may be excluded or partially taxed according to federal rules, such as certain Social Security benefits and qualified retirement plan distributions. Income from Florida municipal bonds is also tax-exempt at both the state and federal level which provides another way for Floridians to smartly invest their money and further minimize their tax liabilities.
Like other types of income in Florida, pension income is not subject to state tax. Consequently, retirees in Florida can enjoy their entire pensions without any state deductions.
This rule extends to both private and public pensions, including federal civil service pensions and military benefits. However, as with all types of income, it's important to understand that pension income may still be taxable at the federal level.
General rules dictate that if you didn't pay tax on the money when you put it into your pension or retirement plan (a traditional IRA or a 401K, for instance), you'll owe federal income tax when you withdraw it.
Some further good news for Florida's retirees and future retirees is that the state also does not tax Social Security or other retirement accounts such as a 401(k) or an individual retirement account (IRA). Also, because Florida has no estate or inheritance tax, next-gen generations can inherit assets without the worry of an additional tax burden. All these factors make Florida a truly attractive destination for anyone in their golden years.
Investment income in Florida, namely interest, dividends, and capital gains, is also not subjected to state income tax, providing investors an opportunity to expand wealth more effectively.
This particularly benefits individuals whose chief income is derived from investments rather than wages.
However, despite being tax-free at the state level, all investment income is still liable for federal taxation.
Depending on the investor's Income bracket and investment type, federal taxes may apply either at the ordinary income tax rates or at the more preferential capital gains tax rates.
Interestingly, while bond interest from other states is usually taxable, the bond interest you earn from Florida municipal bonds is tax-exempt both at the state and federal levels. This offers an additional incentive for Florida investors.
On the other hand, Renting out residential or commercial real estate may be deemed as generating business income, which could potentially become taxable depending on the business owners' legal structure, and their federal obligations. Potential Florida residents considering investing in property for rental income need to carefully consider these potential tax ramifications.
Up to 50% of Social Security benefits may be taxed depending on your income.
For individuals, if your total income is between $25,000 and $34,000, or if filing jointly as a couple with income between $32,000 and $44,000, 50% of benefits may be taxed.
For incomes above $34,000 individually or $44,000 as a couple, up to 85% of benefits may be taxed. AARP's Social Security calculator can help to determine when to claim and maximize benefits.
Property tax in Florida is calculated based on the assessed value of your home on January 1 each year.
The average rate is 0.98% of the assessed value, but rates vary across the state. You may qualify for a homestead exemption of up to $50,000 on your permanent home, and an additional exemption of up to $50,000 if you are 65 or older.
The Save Our Homes program limits assessment growth at 3% or the percent change of the CPI, reducing tax liability. Refer to the Florida Department of Revenue to learn more about property taxes in your area and how to contest the value of your property.
In December 2022, Florida passed a measure allowing a refund to residents who could not live in their homes for at least 30 days due to damage from hurricanes Ian or Nicole. The refund is based on the number of days the home was uninhabitable.
- Sales and use tax is a 6% levy on many consumer items and services, with some counties imposing an additional 1.5% surtax (surtax not applied in some counties). The local surtax is limited to a maximum of $5000 in most cases, including vehicles, boats, aircraft, and mobile homes. The average rate for this tax is 7.02%, as reported by the Tax Foundation. Visit the Department of Revenue website to find the rate specific to your location.
- Florida does not tax most groceries, except those prepared and sold for immediate consumption (e.g., sandwiches). Moreover, prescription and nonprescription drugs, medical equipment, most over-the-counter medical items, and contact lens solutions are not taxable. Clothing, however, is subject to taxation. For a list of tax-exempt items, please visit the Florida Department of Revenue's website.
- Use tax of 6% or more is due on purchases brought into Florida from out-of-state within six months of purchase, such as items bought online or furniture delivered from another state. No tax is due if the out-of-state seller already collected the 6% sales tax.
- Florida's gas tax rate is 0.35225 cents per gallon as of January 1, 2023, a 0.018 cent increase from the previous year. Tax rates may differ by county.
- Beer is taxed at $0.48 per gallon. Wine is taxed at $2.25 - $3.50 per gallon, depending on alcohol content and if it is sparkling. Likewise, liquor is taxed at $2.25 - $9.53, depending on the alcohol percentage. Additionally, in Florida, beer, wine, and liquor purchases are also subject to general sales tax and potential county-imposed surtaxes.
- Florida will offer commuters a 50% discount on tolls in 2023 if their electronic transponder is used at least 35 times in the same month. No commuter tax is charged.
- Lottery winnings are exempt from state taxes, but you must pay federal income tax. For more details, visit the Florida Lottery website.
In Florida, there is no inheritance or estate tax.
If the deceased homeowner was not married or a joint tenant, the homestead exemption ends the year after their death.
However, if the deceased was married, the surviving spouse may keep the homestead exemption so long as they remain the property owner.
This also applies to joint tenants with rights of survivorship that meet certain criteria.
For example, if John and Jane Doe own their Florida residence as joint tenants with the right of survivorship, the home is entirely passed to Jane exempt from estate taxes once John passes away.
Jane can then maintain the homestead exemption on the property so long as she continues to live there and meets the other prerequisites of having a homestead exemption. This way, Jane can potentially save thousands of dollars each year on her property tax bill.
Additionally, if a Florida resident has no successors or folks entitled to claim inheritance under their will, any property remaining is escheat to the state. This means that the state of Florida becomes the owner of any unclaimed or abandoned property.
Concerning assets that were owned by the deceased in a different state, inheritance, and estate taxes of that state may apply.
The need for an ancillary administration may arise if a Florida resident owns real estate outside of Florida at the time of their death.
In this case, the heirs or beneficiaries may need to hire an attorney and probate the estate in the state where the property is located to transfer the asset.
The tax laws and rates applied will depend on the deceased person's residency at the time of death and the various state laws.
This highlights the importance of proper estate planning, as the decision to locate certain assets in one jurisdiction over another potentially affects the inheritance or estate tax payable. Consultation with a knowledgeable estate attorney can provide you with valuable information to consider when planning your succession.
It's also worth noting that the federal estate tax might apply if the total value of the deceased's estate exceeds the prevailing federal estate tax exemption amount.
For 2023, the federal exemption was set at $12.06 million per individual. Valuable resources on these matters can also be appreciated at the IRS website concerning Estate and Gift Taxes.
Residents aged 65+ may be eligible for a property tax break with an exemption set by the local government.
Visit the web page to find county-specific information regarding property taxes and exemptions.
Disabled Veterans aged 65+ may receive an additional homestead discount. Widows/widowers can receive a $5,000 property tax exemption beginning in 2023.
The Save Our Homes assessment limitation caps assessments at 3% or lower, depending on the percent change of the Consumer Price Index.
The limit applies after the property receives a homestead exemption and is assessed at its just value.
If you have a home in Florida and in another state, that other state's tax laws will determine if you must pay personal income tax as a resident.
- To be considered a Florida resident, you must live there for at least 183 days, one day more than six months.
- To qualify for Florida's homestead exemption, you must have permanent residency in Florida and cannot have a similar exemption in another state.
- You can prove your residency with a Florida driver's license, license plate number, or voter registration number. Be sure to check the other state's residency rules if you own a home there, too.
- For businesses, if you maintain a location or have an employee or contractor in Florida, you're required to pay the necessary business taxes and follow the state's amendments.
- On earning over $600 from a Florida source, non-resident individuals have to file a Florida income tax return. Tax rules may differ based on the type of business and the state where it's primarily located.
Small businesses, short-term rental operators, and online platforms such as Airbnb must ensure the tax payment on any rent or other short-term accommodations (less than 180 days) in certain transitory locations like a hotel, motel, apartment, etc.
The Florida Department of Revenue collects the tax for some counties; for others, the tax is collected by the local County Tax Collector's office. Depending on the county, this tax can range from 3% to 7%.
Tourist taxes are above and beyond any other sales tax that might be applicable on the rental, but these are often remitted separately. Attention should also be given to any cleaning fees or other service charges associated with the property as those fees may also be subjected to the tourist tax.
Non-compliance with tourist tax laws can result in penalties and interest charges that can easily exceed the actual amounts of unpaid tax. Management companies typically directly or indirectly handle the tax payments for owners who rent their properties. However, the ultimate responsibility for timely compliance lies with the owner of the property.
In Florida, military pensions and active-duty pay are not subject to taxes since there is no personal income tax.
Florida residents do not need to file a state tax return as there is no personal income tax in the state.
However, businesses must file and pay taxes.
The type of taxes depends on the nature of the business. For most business-related taxes like sales tax and corporate income tax, you are required to file monthly, quarterly, or annually. The deadline for filing corporate income tax is the first day of the fourth month following the close of the taxable year.
The deadline for submitting personal income tax returns and paying taxes for the 2023 tax year is April 15, 2024, and the extension deadline is October 1, 2024.
Note: Due to Hurricane Idalia, the IRS deadline for individuals in Florida affected by the hurricane has been extended. Individuals who have a valid extension to file their 2022 federal tax returns have been extended from Oct. 16, 2023, to Feb. 15, 2024.
Concerning sales tax, if your business collects sales tax, you are responsible for filing and remitting it on the schedule provided by the Florida Department of Revenue. If sales tax is collected monthly, you must file a return and pay the tax by the 1st day of the month following the reporting period.
Regardless of the submission frequency, a sales tax return must be submitted on time to avoid late filing charges and possible penalties, even if no tax is collected or due during the scheduled period.
While there are certainly considerable tax advantages to living in Florida, it is a misunderstanding to think one can completely avoid paying taxes by simply moving to the state.
Indeed, Florida does not impose an income tax on individuals, making the income-earning potential tax-free.
However, there are other forms of taxes that residents are subject to, including sales tax, property tax, and in certain instances, a tourist tax.
For homebuyers, Florida provides a homestead exemption that reduces the taxable value of the home, which, in turn, lowers annual property tax bills.
To maintain the homestead exemption, it is required that you make the property your permanent residence. An individual can't have a similar exemption active in another state.
This also extends to family groups where each member is entitled to a homestead exemption only if all residency requirements are fulfilled without claiming an exemption anywhere else.
Further, depending on how much you spend, sales tax can make up a significant percentage of your tax budget.
The statewide sales tax rate is 6%, but counties can impose their additional tax, which could take the total rate up to 8.5%.
Businesses are also not completely free from taxation — different operational, corporate, and employment taxes could apply depending on the nature of the business.
Florida does have a favorable tax climate overall, and many businesses choose to move here to access this tax structure, but these potential obligations should be considered.
Overall, while Florida’s tax structure offers more breaks and relatively fewer burdens than many other states, potential residents ought to thoroughly research and understand their tax obligations before making the move.
Having a solid grasp of the tax structure can help to ensure that you're not caught off guard by unexpected obligations and can fully benefit from the tax advantages Florida offers.
Fincent: Your Business's Personal Financial Wizard - From Bookkeeping to Tax Filing