Citizens pay for their democracy through taxes. This is the simplest idea behind paying taxes. Tax can be confusing. Why not start understanding tax through the most basic state tax?
State income tax, or state tax involves the collection of money from every state's residents commonly based on their income. The money collected is then used to fund different government projects and services.
As a tax payer, you may view the state tax in two ways.
- Liability Tax. The liability taxation in different states has a single idea but specifically works on different rules. For instance, the state tax rate of Illinois is 3% while it's 5.3% in Massachusetts. Meanwhile, there are some states requiring progressive income tax, instead. This system is just the same only that the tax percentage rates rise as the citizen's income increases. For example, California has 1% tax for people with $6,622 income while they require 9.3% for those with $44,814 income. There are also some states that do not require income tax such as in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Wyoming, and Washington. These states usually get their funds from other taxes like corporate income tax, gambling tax, business profit tax, and property tax. you can access an online tax calculator for comparison also. Your state's internal revenue site may have an online tax calculator. Also, the entire United States can benefit from the state taxes through the federal tax regularly paid by each state. This payment comes from the collected money for the state tax. You can access the tax return forms via each state's internal revenue websites.
- Tax Credits or Refundable Taxes. Fortunately, you don't only pay taxes; you can even get taxes that pay you. These are called the tax credits. But before the state grants your tax credit, you need first to qualify.
Here are some of the tax credits and their qualifications:
- Child Tax Credit. If you are a parent, then you qualify to get $1,000 tax credit for each child who is 17 years of age and below.
- Child and Dependent Care Credit. You will qualify on this if you hired someone to look after your children while you were at work.
- Adoption Tax Credit. As much as $11,650 will be your tax credit if you adopted a child below 18 years old or a person with physical or mental incapability.
- Alternative Energy Tax Credit. Are you using an alternative source of energy, say a solar panel? Then you qualify to get 30% of the total cost back for that.
- Hybrid Vehicles Tax Credit. The amount of tax credit will depend on how well your vehicle uses alternative fuel.
Filing of certain forms is needed before you can get your tax credits.
Isn't it helpful to understand how your state tax system works before filing your tax return? If you want to understand taxation even better, ask your friendly taxation official.