20 Ways State Taxes Could Affect Your Refund
Your state taxes will greatly influence how much you can anticipate getting back in a tax refund. State tax laws and policies could raise or lower your refund amount depending on your location.
- Tricia Quitales
- 6 min read
Your tax refund is directly influenced by state taxes. Different states have different laws on income tax rates, deductions, credits, and other tax-related policies that could affect your refund. These elements can lead to a bigger refund or lower the amount. This article offers 20 ways state taxes might influence your refund, so arming taxpayers with important knowledge to use during tax season.
1. State Income Tax Rates
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Higher state income tax rates usually lead to bigger refunds for people who overpay all year. Your refund might be affected by the degree of income you earned if you reside in a state with progressive tax rates. Those taxed at greater rates will notice a more noticeable impact.
2. State Tax Deductions
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Many states provide their own list of deductions, which could lower your taxable income and raise your refund. Common deductions include charitable contributions, student loan interest, and medical costs. If you qualify for these deductions, they could greatly change your state refund.
3. Tax Credits for Homeowners
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Particularly for property taxes paid, certain states provide homeowners tax credits. These credits can lower your state tax obligation, raising the amount of your refund. For instance, States like Texas and Michigan provide such credits to eligible homeowners.
4. Property Tax Credits
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Some states provide property tax credits to help those with low income or seniors with the amount of property taxes. These credits could increase your state refund and lower your total tax obligation. Should your state provide property tax relief, claim it to increase your refund.
5. State-Specific Tax Exemptions
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Every state has its own exclusions that can reduce your taxable income, including those for retirement income or Social Security benefits. States exempting particular income sources can raise your refund by lowering the taxable income. Check your state’s exclusions to make sure you are maximizing your refund.
6. Tax Credits for Education Expenses
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Many states offer tax credits or deductions for education-related costs, including student loan interest and tuition. These credits may increase your state tax refund by lowering the amount of taxes you owe. States such as New York and Minnesota provide particular credits for educational expenses.
7. Tax Brackets
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The income tax brackets of the state can influence your tax payment, which determines your refund. Higher tax brackets in some states could lead to more tax obligations, which would mean less refund for you. Conversely, if you overpaid throughout the year, states with lower tax brackets could entitle you to a bigger refund.
8. Filing Status
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Some states let you select various filing statuses, such as single, married filing jointly, or head of household, which could affect your state tax obligation and refund. Your filing status will determine whether you qualify for different credits or deductions, which will affect the size of your refund. Maximizing your refund depends on your choice of filing status.
9. State Sales Tax
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Some states let you offset state income taxes with state sales taxes. Taxpayers in states without an income tax, such as Texas or Florida, will find this option useful. Living in such a state, subtracting sales taxes could increase your state refund.
10. Earned Income Tax Credit (EITC)
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Many states provide a state-level Earned Income Tax Credit (EITC) that reflects the federal one. Aimed at low-to-moderate-income earners, this credit can greatly raise your refund. If you qualify for this credit, it could lead to a bigger state tax refund.
11. Child Tax Credits
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Certain states provide extra child tax credits above the federal one, which could raise your state refund. These credits often depend on your income and the number of children you claim. Your refund could be greater if you reside in a state providing such credits.
12. State Tax Withholding
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The amount of state tax taken from your salary will significantly affect the amount of your refund. Too much withholding could result in a bigger refund; too little could result in tax liability. Correctly controlling your state withholding helps to prevent underpayment or overpayment.
13. State Tax Audits
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Sometimes, states will check your return and change your refund. Depending on what the state discovers, audits can result in adjustments, either raising or lowering your refund. Ensuring your state return is correct will help prevent problems that might lower or postpone your refund.
14. Tax Credits for Energy-Efficient Home Improvements
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Some states provide tax credits for energy-saving home upgrades like installing solar panels or energy-efficient windows. These credits can boost your state refund and reduce your tax liability. See whether your state provides such incentives to maximize these tax savings.
15. State-Run Retirement Savings Incentives
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Other states provide benefits for funding state-sponsored retirement accounts or 529 college savings programs. These donations could qualify for tax credits or be deductible, lowering your taxable income and boosting your refund. States such as Oregon and California have such policies in place.
16. Senior Citizen Tax Breaks
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Many states offer tax breaks for elderly people, which might cover property tax credits or Social Security income exclusions. These discounts can lower your taxable income, increasing your refund. Seniors should look at their state’s particular tax advantages for older citizens.
17. Income Tax Exemptions for Military Veterans
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Veterans might qualify for state income tax exclusions on their military retirement income. Many states, including Texas and Florida, provide exemptions, which can raise your state refund by reducing your taxable income. When submitting their state taxes, veterans should make use of these exclusions.
18. State Taxes on Social Security Benefits
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While some states exempt Social Security benefits from state income tax, others tax them. Living in a state that does not tax Social Security benefits could lead to a larger refund. Conversely, if your state taxes these benefits, it may lower your refund.
19. Tax Refund Timing
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Several elements, including how long it takes for your state to handle returns, will affect the timing of your state tax refund. States that process more slowly can postpone your refund, but you could still get the same amount back. Knowing your state’s processing times helps to control expectations for when to anticipate your refund.
20. State Tax Reforms
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Changes in state tax legislation could affect your refund for a particular year. Your state may have recently adopted new tax rules or rates, which would affect your financial condition and determine a larger or smaller refund. Keep updated on any state tax changes that might affect your refund.