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Navigating Virginia State Income Tax: What You Need to Know

As tax season approaches, Virginia taxpayers may be wondering how their state compares to others in terms of state income tax rates and what they can expect to pay on tax day. In this article, we will provide an overview of Virginia’s state income tax compared to neighboring states, as well as GOBankingRates’ ranking of Virginia as one of the worst states for income tax.

We will also look at the amount single filers earning median income can expect to pay in state income taxes and how Virginia’s tax rate compares to nearby states and Maryland.

Virginia Taxpayers Owe More Than Neighboring States

Compared to neighboring states, Virginia’s state income tax is on the higher end. According to data provided by the Tax Foundation, Virginia’s state income tax rate was 5.75% for tax year 2020, higher than North Carolina’s 5.25%, Tennessee’s 0%, and West Virginia’s 3%.

Maryland had a slightly higher tax rate of 5.75%, making it a comparable neighbor. In 2015, GOBankingRates ranked Virginia No.7 among the worst states for income tax.

Their analysis found that Virginia residents who earned between $50,000 and $99,999 annually paid an average state income tax of $2,291. This amount was higher than the neighboring state of North Carolina, where residents paid an average of $1,683 in state income tax.

How Much Virginia Taxpayers Could Pay on Tax Day

For single filers earning median income, Virginia’s state income tax can amount to a significant portion of their income. According to the Tax Foundation, in 2020, single filers earning the state’s median income of $70,114 can expect to pay $2,975 in state income taxes.

This amount is higher than neighboring states West Virginia and Tennessee, where taxpayers earning median income would pay $1,295 and $0, respectively. North Carolina’s median income taxpayers pay slightly less, with an average state income tax of $2,207.

However, it’s worth noting that while Virginia’s state income tax rate may be higher than some neighboring states, its overall tax burden is lower than the national average. According to WalletHub’s analysis of tax rates by state, Virginia ranked No. 24 for overall tax burden in 2020.

WalletHub’s analysis takes into account property taxes, sales and excise taxes, and income taxes. Comparison of Virginia’s Tax Rate with Neighboring States and Maryland

When comparing Virginia’s tax rate with neighboring states and Maryland, it becomes clear that it falls on the higher end of the spectrum.

The Tax Foundation’s 2020 state income tax data found that Virginia’s tax rate of 5.75% was higher than West Virginia’s 3%, Tennessee’s 0%, and North Carolina’s 5.25%. However, Maryland had a slightly higher tax rate of 5.75%, making it a comparable neighboring state.

Taxpayers in Maryland earning median income of $93,993 can expect to pay $4,238 in state income taxes, according to the Tax Foundation’s analysis. This amount is significantly higher than what single filers earning Virginia’s median income pay in state income taxes.

Conclusion

As taxpayers prepare to file their taxes, it’s essential to understand how Virginia’s state income tax compares to other neighboring states. While Virginia’s tax rate may be higher than some of its neighbors, its overall tax burden is lower than the national average.

For single filers earning median income, Virginia’s state income tax can amount to a significant portion of their income. Understanding how much you can expect to pay in taxes can help you plan and budget accordingly.

3) Tax Brackets and Rates for Virginia Residents

Knowing your tax bracket and the corresponding tax rate is essential when filing taxes. In Virginia, there are four tax brackets, ranging from 2% to 5.75%.

The tax brackets and corresponding tax rates for single and joint filers are as follows:

For single filers:

– Taxable income up to $3,000: 2%

– Taxable income between $3,001 and $5,000: 3%

– Taxable income between $5,001 and $17,000: 5%

– Taxable income above $17,000: 5.75%

For married couples filing jointly:

– Taxable income up to $5,000: 2%

– Taxable income between $5,001 and $17,000: 5%

– Taxable income between $17,001 and $20,000: 5.5%

– Taxable income above $20,000: 5.75%

It’s important to note that these tax brackets and rates are for the state income tax only and do not include other taxes such as federal income tax or local taxes. Furthermore, Virginia offers various deductions and tax credits that may impact your overall tax liability, such as deductions for charitable donations, student loan interest, and retirement contributions.

4) GOBankingRates Methodology for Ranking State Income Tax

GOBankingRates is a personal finance website that provides financial information and offers resources to help readers make informed financial decisions. One of their most popular features is an annual ranking of the best and worst states for income tax.

This ranking is determined using a methodology that takes into account various factors, including tax brackets, tax rates, deductions, and exemptions. In their methodology, GOBankingRates assigns weights to each of the following factors: tax rate (40%), tax brackets (30%), deductions (20%), and exemptions (10%).

The tax rate is the most heavily weighted factor since it directly impacts the amount of tax liability. On the other hand, exemptions are the least weighted factor since they may not be applicable to everyone.

While GOBankingRates’ methodology provides a useful comparison between states, it is important to note its limitations. For instance, their methodology does not take into account the different tax structures among states, such as those with no state income tax or those with a flat tax rate.

Furthermore, the methodology does not account for non-tax benefits, such as cost of living or quality of life. Another limitation is the use of a modeled taxpayer to determine tax liability.

This modeled taxpayer assumes a set of standard deductions and exemptions, which may not apply to all taxpayers. As a result, the ranking may not be accurate for all individuals, particularly those with specific tax situations or high incomes.

Conclusion

Understanding tax brackets and rates in Virginia is essential when preparing to file taxes, as well as taking into account various deductions and credits that may impact your overall tax liability. GOBankingRates’ methodology provides a valuable comparison of the tax burden among states, but it is important to be aware of the limitations of their approach.

Ultimately, it’s crucial to consult a tax professional to ensure accurate and compliant tax filing.

5) How to Reduce Your Income Tax Liability

Filing taxes can be an overwhelming process, but taking advantage of deductions and exemptions can help reduce your income tax liability.

Deductions and exemptions are expenses or income that can reduce your taxable income.

In this section, we will explore some of the most common exemptions and deductions available to taxpayers, as well as ones specific to Virginia residents.

Exemptions

Exemptions are deductions that reduce your taxable income by a fixed amount per family member. In 2020, the federal exemption was $4,050 per person, but it was eliminated for tax year 2021 under the Tax Cuts and Jobs Act.

Virginia also allowed a personal exemption of $930 in 2018 and 2019 but eliminated it for subsequent years. However, Virginia still allows exemptions for taxpayers who are 65 or older, blind, or have a dependent with a disability.

For each qualifying individual, taxpayers can claim a $930 exemption. Virginia also provides a $800 exemption for individuals who are 100% disabled.

Deductions

Deductions are expenses that reduce your taxable income. There are two types of deductions: standard deductions and itemized deductions.

Standard deductions are a fixed dollar amount that taxpayers can subtract from their taxable income. In 2020, the standard deduction for single filers and married filing separately was $12,400, and for married filing jointly, it was $24,800.

Itemized deductions, on the other hand, are specific expenses that taxpayers can deduct from their taxable income, but they require more documentation than standard deductions. Itemized deductions include expenses such as medical and dental expenses, state and local taxes, mortgage interest, and charitable donations.

Virginia taxpayers can also claim itemized deductions on their state tax return. Virginia allows the same itemized deductions as the federal government, with one exception.

Virginia taxpayers cannot deduct state income tax or sales tax on their state tax return since Virginia does not have a tax on groceries, medicine, or non-prescription drugs. In addition, Virginia provides the following deductions:

– Standard Deduction: Virginia taxpayers can claim a standard deduction of $6,000 for single filers and $12,000 for married filing jointly.

– Personal Exemption: Virginia taxpayers can claim a personal exemption of $930 in tax year 2018 and 2019, as mentioned earlier. – Dependency Exemption: Virginia taxpayers can claim a dependency exemption of $930 per exemption for each qualifying dependent.

Tax Credits

Tax credits are different from deductions since they are subtracted directly from a taxpayer’s tax liability. Tax credits are valuable since they offer a dollar-for-dollar reduction in the amount of taxes owed.

Some tax credits available to Virginia taxpayers include:

– Credit for Low-Income Individuals: Virginia provides a refundable tax credit for low-income individuals or families that earn up to 80% of the federal poverty level. The credit ranges from $60 to $580, depending on income and family size.

– Education Tax Credit: Virginia taxpayers can claim 25% of the charitable contributions they make to an eligible educational institution located in Virginia, up to $2,000. – Land Preservation Tax Credit: Virginia offers a tax credit for 40% of the value of donated land or conservation easements that preserve open space, scenic beauty, or natural resources.

Conclusion

Taking advantage of exemptions, deductions, and tax credits can significantly reduce your income tax liability. Virginia taxpayers can claim various exemptions and deductions to reduce their state income tax liability, as well as tax credits that offer a direct reduction in taxes owed.

It’s crucial to keep track of expenses and seek professional guidance if you are unsure about eligibility or how to claim these tax benefits. In conclusion, understanding Virginia state income tax is crucial when preparing to file taxes.

Virginia’s tax rate is higher than some neighboring states, and GOBankingRates ranked Virginia as one of the worst states for income tax in 2015. Virginia taxpayers can reduce their taxable income through exemptions, deductions, and tax credits, such as the low-income individuals credit, education tax credit, and land preservation tax credit.

While filing taxes can be overwhelming, taking advantage of these tax benefits can significantly reduce your income tax liability and help you plan and budget for tax season. Seeking professional guidance and keeping track of expenses are essential steps when navigating Virginia state income tax.

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