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Where Taxpayers Get the Biggest Tax Bills in the U.S.

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.


Whether or not you can expect a tax bill or a refund this year could be down to where you live.

In a new study by MagnifyMoney, we analyzed IRS tax data for 100 of the largest U.S. metros over a five-year period (2012-2016) to find out where people owe the most taxes at the time they file their return and where people are getting the biggest refunds.

On average, we found taxpayers who owe will face a federal tax bill of $5,294 when they file while those taxpayers who get a refund will pocket an average of $3,052.

Key findings

Nearly one in five taxpayers owe Uncle Sam when they file. Among the 100 metros analyzed, 17% of taxpayers owed and 78% got a refund.

You’re more likely to owe if you itemize. On average, 33% of taxpayers itemized their taxes over the five-year period we studied. But that number was much higher when in the top 10 metros where taxpayers owed taxes where 39% itemized. Just about across the board, we found metros where people owed the most on their taxes were also more likely to itemize. Take no. 1, San Francisco, for example, where some 40% of taxpayers itemize.

The exception was Sarasota, Fla. Although the rate of taxpayers who itemize there was below the average (27% vs 33%), the share of Sarasotans who owed taxes was greater than average (21% vs 18%).

Tax season really hurts out West. Eight of the top 10 metros where taxpayers owed the IRS were either on the West Coast, Midwest or Southwest regions. California metros took three of the top spots. But Denver was in a three-way tie for second place along with Sacramento and San Diego, where 22% of taxpayers owed Uncle Sam in all three metros. However, Denver has slightly worse problems, given the average taxpayer there owes more — $5,607 on average, compared with $5,260 (San Diego) and $4,243 (Sacramento).

San Francisco tops the list among those who owe taxes. One in four San Francisco taxpayers owes taxes when they file, we found, with an average tax bill of $7,226. That’s about 40% greater than the national average. As if a ridiculously competitive job and housing market weren’t trouble enough for Bay Area residents….

Some of this might be offset by refunds of state taxes at filing, which are not included in the IRS data.

Not all is bleak for the Bay Area. And yet, San Francisco once again proves itself a town of extremes. San Franciscans might pay Uncle Sam the most come tax season but they also take home the sixth largest tax refund than average – $3,466 vs. $2,981. And despite shouldering the highest average tax owed at filing among all 100 metros, the amount they end up owing when they file relative to their income is about the same as the national average — at 7%.

Rank

Metro

% Who Owed

Avg. amount owed

1

San Francisco, Calif.

25%

$7,226

2

Denver, Colo.

22%

$5,607

3

Sacramento, Calif.

22%

$4,243

4

San Diego, Calif.

22%

$5,260

5

Boise, Idaho

21%

$4,694

6

Phoenix, Ariz.

21%

$4,578

7

Sarasota, Fla.

21%

$5,947

8

Washington, D.C.

21%

$4,912

9

Minneapolis, Minn.

21%

$4,971

10

Portland, Ore.

21%

$4,563

Average amount owed among all 100 metros: $5,294

Rank

Metro

Avg. refund amount

% Who got a refund

1

Fort Myers, Fla.

$3,799

70%

2

Miami, Fla.

$3,706

76%

3

McAllen, Texas

$3,666

88%

4

New York, N.Y.

$3,664

75%

5

Houston, Texas

$3,601

78%

6

San Francisco, Calif.

$3,466

68%

7

Corpus Christi, Texas

$3,453

82%

8

Dallas, Texas

$3,329

78%

9

Memphis, Tenn.

$3,254

82%

10

Lafayette, La.

$3,253

80%

Avg. refund among all 100 metros: $3,052

The metros with the greatest tax burden when they file

When we looked at how significant tax amounts owed at filing were as a share of income, we found McAllen, Texas workers are suffering the most. In the notoriously low-income metro area, the average tax bill of $5,623 (among those who owe taxes) constitutes 16% of their income — double the average of 8% we found across all 100 metros. That’s no easy tax burden to bear, especially if it comes as a surprise and doubly so in a city where households earn 22% less than the national average.

Rank

Metro

% of income owed

1

McAllen, Texas

16%

2

Visalia, Calif.

12%

3

Corpus Christi, Texas

12%

4

Miami, Fla.

11%

5

Fresno, Calif.

11%

6

Fort Myers, Fla.

10%

7

Las Vegas, Nev.

10%

8

Modesto, Calif.

10%

9

Jackson, Miss.

10%

10

Bakersfield, Calif.

10%

Learn more

Is it better to owe or be owed?

Just because you owe taxes doesn’t necessarily mean you did anything wrong. In fact, some taxpayers may prefer it that way. Rather than give the U.S. treasury department an interest-free loan for a year, some workers decide to purposely withhold more income from taxes in order to pay less in taxes throughout the year. Of course, that could result in owing taxes, unless you’re able to exactly project your tax burden and plan accordingly.  So long as you’re prepared to handle any tax bill when it finally comes — and pay it on time — there’s no harm, no foul.

The choice is up to each taxpayer’s preference, says George Papadopoulos, a Novi, Mich.-based CPA.

“Some like bigger refunds as they see it as a type of forced savings,” he explains.  “Some like to hold on to their money as long as possible and then cut a check on [the tax filing deadline] of the absolute lowest amount that does not include a penalty.”

The ideal situation is for a taxpayer to get a small refund and never incur any penalties for underpaying their taxes.

“If we cut it too close, we run the risk of being underpaid and then owing,” Papadopoulos adds. “Everyone is different. The key is to do a good tax projection so no surprises come up at tax filing time.”

Essential tips for tax year 2017

File as soon as you can. The IRS managed to catch 883,000 confirmed cases of identity theft returns in 2016 alone. The best way to stop fraudsters from stealing your Social Security number and filing on your behalf is to beat them to the punch. As soon as you’ve got your tax documents in place, get a move on.

Pay your tax bill ASAP. You can file an extension to file your tax return but that doesn’t mean you get a break on when you owe taxes. You are still obligated to calculate the amount you’ll owe and pay that by April 17 for 2017 taxes, even if you’re not yet ready to file.

Seriously — don’t let tax debts lie. If you fail to pay your tax debt, you could face a host of penalties, from interest charges and late fees to wage garnishment and even liens against your property.

Enroll in an IRS payment plan. If you can’t pay your tax bill in one fell swoop, there’s no shame in that. The IRS is willing to work with you. File your taxes and call the IRS to enroll in a payment plan. The worst thing you can do is avoid that call.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Mandi Woodruff
Mandi Woodruff |

Mandi Woodruff is a writer at MagnifyMoney. You can email Mandi at mandi@magnifymoney.com

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10 Places Where You Can Earn Six Figures and Still Be Broke

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

A household bringing in $100,000 each year might look financially stable on paper. But after factoring in taxes, housing, transportation, and other basic budget line items, a new MagnifyMoney analysis found six-figure families can easily struggle to make ends meet.

In our report, The Best and Worst Cities to Live On Six Figures, we analyzed 381 major metros across the U.S. to see where a family earning $100,000 has the most wiggle room in their budgets.

We based our estimates on a two-earner household with two adults and one child and a gross annual income of $100,000 ($8,333 per month).

Then we created a reasonable budget for monthly expenses and subtracted that total from their after-tax income. We ranked cities from worst (least amount of money left over at the end of each month) to best (the most amount of money left over at the end of each month).

Behind the Budget:

We based most of our budget estimates on publicly available data, but we had to make some assumptions. We assumed one of the household earners carries some student debt, that all families set aside at least 5% in personal savings, and that they enjoy some entertainment throughout the month. That budget includes basic necessities: housing, food, transportation, child care, as well as variable spending on student debt, savings, and entertainment. See our full methodology here.

Key Findings

  • In 11 out of 381 metro areas analyzed, households earning six figures would spend more than 90% of their total take-home pay on basic monthly expenses. The average across all 381 metros is 75% of take-home pay spent on monthly expenses.
  • In 71 out of 381 metro areas analyzed, households earning six figures are spending more than 75% of their budget on basic monthly expenses.
  • Six figures and broke in Washington, D.C.: The worst metro area for a family earning $100,000 includes Washington, D.C. and neighboring cities Arlington and Alexandria, Va. After factoring in monthly expenses, families would be $315 in the red. Stamford, CT, San Jose, CA, San Francisco, CA, and the New York City area round out the 5 worst areas for affordability.
  • California is the ultimate budget killer: The Golden State is home to 9 out of the top 20 worst metros for six-figure families, including San Francisco, San Jose, Santa Cruz, San Diego and Napa. However, Los Angeles area six-figure families are able to save about $500 a month more than San Francisco area families, thanks to lower housing costs.
  • Tennessee dominates: If you’re looking for bang for your buck, it doesn’t get more affordable than Tennessee. The top three best metros for six-figure households are in Tennessee, and a total of five out of the top 10 best metros on the list are from the Volunteer State.
  • Living large in Johnson City, Tenn.: The best metro area for a family earning $100,000 is Johnson City, Tenn., where families only spend 62% of their household budgets on basic expenses. After factoring in monthly expenses, families would have a surplus of over $2,400 each month.
  • The South reigns supreme. The Southeast and Southwest tied as the best region for six-figure families, requiring them to use an average of only 70% of their income on basic expenses.
  • Steer clear of the coasts. In another tie, the Northeast and West ranked worst among the five regions. On average, six-figure households spend 80% of their earnings in these regions.
  • Housing is a budget buster. In 64 out of 381 metros, six-figure households are spending more than one-quarter of their monthly income on housing. In 18 out of 381 metros, six-figure households are spending more than one-third of their budget on housing.
  • Child care isn’t cheap. Child care expenses consume 10% or more of household budgets in 42% all metro areas (161 of 381).

View the complete data here.

The WORST Metros for Six-Figure Households: By the Numbers

1. Washington, D.C./Alexandria/Arlington, VA

It’s shockingly easy for a household earning $100,000 to live beyond their means in this high-cost metro area. To meet the basic costs of these seven expenses, they would spend 5% more than they actually earn after taxes, leaving them $315 in the red. Housing and childcare alone consume a whopping 60% of the household budget of a family living in this metro area.

2. Bridgeport/Stamford/Norwalk, CT

Thanks mostly to lower average child care costs ($959 per month vs. $1,000+ in metros like Washington, D.C., and Boston), families earning $100,000 would be slightly better off — but only slightly. After accounting for expenses, they would still be $139 in the red. Housing has much to do with that. It would consume 43% of the household budget alone.

3. San Jose/Sunnyvale/Santa Clara, CA

It’s a good thing Silicon Valley gigs pay well. A $100,000-earning family in the San Jose/Sunnyvale/Santa Clara metro area would only just manage to make ends meet, according to our findings. They would spend 99% of their total income on basic expenses. Nearly half of their income would go toward housing (46%), more than households in any other metro area analyzed.

4. San Francisco/Oakland/Hayward, CA

Right next door to the no. 3 worst metro on our list, the San Francisco/Oakland/Hayward combo presents another budget-busting challenge for six-figure households. The area gets an edge because it has a slightly more affordable housing situation. A family earning $100,000 would use roughly 43% of their budget on housing. And when all’s said and paid for, families would use 96% of their earnings on basic expenses.

5. New York, NY/Newark/Jersey City, NJ

We land back on the East Coast for the no. 5 worst metro for six-figure households. New Yorkers and the bridge and tunnelers of Newark and Jersey City, N.J., may face exorbitant housing and child care expenses, but they luck out in one key area: transportation. The area ranks the third most affordable for transportation, likely due to the prevalence of public transit. A six-figure household would only use 13% of their budget to get around. That’s nearly half the rate spent on transit in nearby Lexington Park, Md. (23%). Still, cheaper transit options don’t quite make up for the fact that a family earning $100,000 in this area would still have to dedicate a total of 57% of their budget to housing and child care alone. At the end of the month, 96% of their earnings would be dust.

6. California/Lexington Park, MD

High earners in California/Lexington Park, Md., will spend a fair chunk of their earnings on transportation — 23% of their take-home pay. After housing, transportation is the most expensive line item in their budget. Still, they benefit from relatively low housing expenses compared to the other metros in the bottom 10, which gives households here a boost. Higher taxes also leave them with less take-home pay

7. Kahului/Wailuku/Lahaina, HI

Thanks to one of the highest income tax rates in the U.S., high-earning households in Hawaii start off with less take-home pay than their counterparts across the country. A married couple earning $100,000 and filing taxes jointly would get hit with an 8.25% state income tax rate.

Both higher housing costs and transportation expenses make this region in Hawaii, located on the island of Maui, one of the worst places for six-figure households. At the end of each month, they have just $292 left in the household budget. The majority of their take-home pay will go toward housing (38%) and transportation (18%).

8. Honolulu, HI

A family earning $100,000 in Honolulu would fare slightly better than their neighbors on Maui, thanks to lower transportation costs. At the end of each month, they have $302 left in the household budget, versus $292 for households in the Kahului-Wailuku-Lahaina area.

9. Boston-Cambridge-Newton, MA-NH

Relative to their take-home pay, Boston families earning $100,000 spend well over half their household budget on housing and child care — 36% and 17%, respectively.

10. Santa Cruz/Watsonville, CA

Santa Cruz-Watsonville, CA rounds out our rankings. A household earning $100,000 would scrape by at the end of the month with just $329 left.

The BEST Metros for Six-Figure Households: By the Numbers

1. Johnson City, TN

The Southeast is by far the best region to move to if you want to stretch your six-figure income, and Tennessee should be top of your list. Four out of the top 10 best places to earn six figures belong to Tennessee metros.

2. Morristown, TN

A six-figure family living in Morristown, TN would have just over $2,500 left in the bank after paying for essentials and a bit of entertainment. That’s plenty of cash to build up an emergency fund.

3. Cleveland, TN

Tennessee continues to dominate the list, with Cleveland, TN coming in third place among the most affordable places for six-figure households. Families spend just 63% of their post-tax monthly income on essentials, savings and entertainment.

4. Hattiesburg, MS

Hattiesburg, MS takes the no. 4 spot, where  a six-figure family can afford to cover essential expenses, plus savings and entertainment with just 64% of their post-tax income.

5. McAllen-Edinburg-Mission, TX

A family earning $100,000 per year in McAllen, TX would have more than enough to meet their basic needs and then some. Only 14% of their income is spent on transportation ($955 per month) and just 16% goes toward housing ($1,086 per month).

6. Jackson, TN

We’re back to the Volunteer state at No. 6 with Jackson, TN.

7. Chattanooga, TN-GA

Right on the border of Tennessee and Georgia, Chattanooga proves to be a great location of a family bringing in $100,000 per year. Relatively low housing, child care and transportation costs leave plenty of breathing room in the budget.

8. Lafayette-West Lafayette, IN

The midwest makes its first and only showing in the top 10 affordable places list with Lafayette, IN. Just under two-thirds (65%) of a family’s monthly post-tax income would be used on budget essentials like housing, food, child care and transportation.

9. Jackson, MS

We’re back to Mississippi at No. 9 with Jackson, MS making a strong showing among the most affordable places for a six-figure family.

10. Brownsville-Harlingen, TX

Texas rounds out the top 10 affordable places for $100,000 households, with the Brownsville-Harlingen area nabbing the last spot. Families would have over $2,300 left in the bank at month’s end based on our estimates.

A Tale of Two Cities

In the graphic below, see how different life is for a family earning $100,000 in Washington, D.C. vs. Johnson City, TN.

Regional Findings

Click a region to jump to the rankings:

WestWestWestWestWestMidWestNortheastSouthWestSouthEastSouthEast

Methodology:

We based our findings on the projected disposable income for a family of three — two adults and one child age 4 years old. We assume the total household gross income is $100,000.

We estimated post-tax income for each metro area.

Housing

Based on metro-level estimates from U.S. Census Current Population Survey

Child care

Economic Policy Institute — State level child care costs in the U.S.

Food

Official USDA Food Plans: Cost of Food at Home at Four Levels, U.S. Average, April 2017

Based on a moderate plan for a family of three: One male (age 19 to 50 years), one female (age 19 to 50 years), and child (age 4 to 5 years). Adjustment factor of 5% added.

Transportation

Based on metro-level data compiled by the U.S. Dept. of Transportation

U.S. Dept. of Housing and Urban Development “Location Affordability Portal”

Student debt payment

State Level Household Debt Statistics 2003-2016, Federal Reserve Bank of New York.

The Student Loan Debt Balance per Capita is distributed equally over 10 years with an interest rate of 4.66%.

Entertainment

We assumed all households would spend 5% of their income on entertainment, per the Bureau of Labor Statistics Consumer Expenditures Survey (CE)

Personal savings

We assumed all households would set aside 5% for personal savings, based on averages from the St. Louis Federal Reserve Bank, personal savings rate.

Data analysis by Priyanka Sarkar, Arpi Shah and Mandi Woodruff.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Mandi Woodruff
Mandi Woodruff |

Mandi Woodruff is a writer at MagnifyMoney. You can email Mandi at mandi@magnifymoney.com

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1 in 5 Americans Will Go into Debt to Pay for Summer Vacation

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

With summertime right around the corner, millions of Americans will pile into cars, planes, and trains and head off for summer vacation.

In a new nationwide poll, MagnifyMoney asked 500 U.S. adults planning to take a summer vacation how they will pay for their getaways.

Alarmingly, we found a significant number of vacationers are willing to drive themselves into debt for some fun in the sun.

Key findings:

  • The average American will spend $2,936 on their summer vacation in 2017

  • 1 in 5 vacationers (21%) will go into debt to pay for their summer getaways

  • People who already have debt are more than twice as likely to use debt to cover some vacation expenses as people who are debt-free: 30% vs. 13%

  • Vacationers who plan to use debt to pay for their vacation will also spend much more than the average vacationer: $4,351 vs. $2,936

  • Summer vacation FOMO is real: 31% of people say they feel pressured to go on vacation even though they’d rather pay off debt.

—————————————

Summer Vacation: The Ultimate Debt Trap?

Summer vacation will set the average American back nearly $3,000 this year, according to the survey.

But an alarming number of travelers will be going into debt to finance their getaways.

One in five (21%) of respondents said they plan to go into debt to pay for vacation, according to the survey.

Among those who said they plan go into debt to pay for vacation, a whopping 71% admitted to already carrying some credit card debt.

People who already have debt are more likely to turn to debt to pay for vacation (30%) than those who are debt-free (13%).

 

Using debt to pay for a big trip may not seem like a big deal. But our survey shows using debt can lead people to spend more than they might spend otherwise.

When we looked at respondents who said they are planning to take on debt to pay for their vacation, we found that they were likely to spend significantly more on vacation than their peers.

On average, survey respondents said their vacations will cost $2,936 this year. And they plan to cover 20% of that expense ($595) with some form of debt.

On the other hand, people planning to go into debt said they will spend nearly twice that amount on their vacation — $4,351. And they’ll use debt to cover an even larger share of their total vacation expenses — 38% vs. 20%.

On the flip side, vacationers who have no debt will spend the least on vacation and plan to cover just 14% of their total vacation costs with new debt.

Vacation debt can easily stick around for months or even years to come, depending on how much debt a consumer already has to contend with.

Let’s say a person pays for their vacation expenses on a credit card with an average APR of 16%. They spend $1,670. If they make only minimum payments each month, it would take them over five years to pay off the debt, and they would pay $822 in interest charges.

When it comes to vacation, credit cards are king

The vast majority of respondents who said they will use debt to pay for some of their vacation expenses will use credit cards.

 

FOMO + Vacation Debt

It’s evident from our survey that outside societal pressure to take a big summer vacation can push someone to spend outside of their means.

Nearly one-third (31%) of people who already have debt say they felt pressure to go on vacation anyway.

The pressure is even worse for people who said they are planning to go into debt for vacation. Nearly half (46%) said they felt pressure to go on vacation even though they’d like to pay down some of their existing debt.

People who planned on taking on debt to pay for their summer vacation were also less likely to say they would be willing to skip a summer vacation to pay off their debt.

More than half (53%) of people planning to go into debt for vacation would be willing to skip vacation to pay off debt.

Meanwhile, 60% of people who have no debt said they’d be willing to skip a vacation to pay off debt.

Millennials Rack Up the Most Vacation Debt

Millennials may spend more on vacations than older generations, but it’s Gen Xers and Boomers who are more likely to fund their vacation expenses with plastic.

On average, 18-35 year olds said they will spend $3,163 on vacation and take on $725 of debt in the process. By comparison, respondents age 35 and older will spend $2,761 on vacation and cover $495 of it with debt.

Millennials were slightly more susceptible to peer pressure as well. Just under half (49%) of 18-35 year olds who plan to go into debt for vacation said they feel pressured to vacation rather than pay off debt. Comparatively, 44% of those age 35 years and older who said they plan to go into debt for vacation also said they felt pressure to do so.

Methodology: MagnifyMoney commissioned Pollfish to conduct an online survey of 500 U.S. adults who plan to take a vacation this summer and are responsible for most of the cost of the vacation. Responses were collected April 15 – 26, 2017.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Mandi Woodruff
Mandi Woodruff |

Mandi Woodruff is a writer at MagnifyMoney. You can email Mandi at mandi@magnifymoney.com

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