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My husband is retired and earns about $60,000 a year. I have no income. We file our federal income tax return as a married couple filing jointly with two exemptions (him and me) and we normally take the standard deduction. We live in a state that does NOT have a state income tax. We were wondering how our taxes would be affected if we move to California. What is the state income tax rate, and would we be able to deduct that from our federal return or get a credit for it? Our only income is my husband's $60,000 retirement income (consisting of two government pensions plus Social Security).
Your question did not specify the breakdown of your family’s income between Social Security income and other pension income. This is key information because Social Security is not taxed in California. Thus, the larger the Social Security income is, the less income tax you would pay to California. I did some rough calculations to test a
range of potential tax liabilities that would give you a sufficient estimate to use in your planning. If none of your income is from Social Security, your California tax burden would be about $1,100. If about $36,000 of your income is from Social Security, you would owe no California tax. When I tested Social Security income at $24,000 and at $18,000 per year, the California taxes on your income would be about $235 or $375 respectively. California income taxes qualify as an itemized deduction, but if the deduction for sales tax paid is higher, then you would elect to use that as your deductible amount. In either case, I anticipate that neither deduction would be sufficient to change your election to take the standard deduction.
Deciding to move to a different state will have other effects on your financial picture. Things to consider are property taxes, sales taxes, relative cost of living, amenities available and health-care facilities nearby. There are other non-financial factors as well, such as nearness of relatives and friends. You should consider all of this information before making your decision.
California is a huge state with many micro-economies. The cost of living varies significantly between major metropolitan areas and rural environments. Many times people who move to California complain of “sticker shock” when they find out the cost of housing after they arrive.
I am not trying to discourage you from coming to the Golden State. I love living here and have trouble imagining living anywhere else. We have great beaches, breathtaking national and state parks and some of the finest entertainment venues in the world. Your decision to move here is complex, and you would be wise to consult your CPA or other trusted financial advisor, as well as your close friends and relatives, before making your decision.
Loella Haskew is a Walnut Creek, Calif., CPA with the firm of Buckley Patchen Riemann & Hall. You can reach her at (925) 937-2727(925) 937-2727.
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