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

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.


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 [email protected]

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How to Save on Back-to-School Shopping

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

iStock
Parents often revel in the calm and quiet that comes when kids head back to school, but they aren’t likely to enjoy the excess spending that also accompanies the back-to-school season. According to the National Retail Federation, parents will set a record in 2019, spending an average of $696.70 per household on children in elementary school through high school.

 

“It was interesting to see the across-the-board increases in spending levels,” said Mark Mathews, vice president for research development and industry analysis with the NRF. “Elevated levels of consumer sentiment, healthy household balance sheets, low inflation and recent wage gains all seem to be contributing to a confident consumer who is willing to spend money on back-to-school supplies.”

If you’re planning a trip to the store before classes start, there are a few ways to curb the spending and save some bucks.

Plan ahead

No parent should set foot out the door for back-to-school shopping without first taking stock of what they already have. Plenty of old supplies from previous years might still be usable, especially arts and crafts items like crayons, pencils and pens, as well as more expensive things like backpacks, lunch boxes and calculators.

Crossing a few items off your list is a good first step when it comes to saving, but learning how to budget is also important. It’s tempting to run down the back-to-school aisle and grab every colorful notebook and snazzy pencil case in sight, but it doesn’t make a lot of financial sense. Create a realistic budget based on the items you actually need, and try your best to stick to it. If possible, do most of your shopping online, since it’s easier to keep a running tally of how much you’re spending as you shop.

Be smart about sales

Although you’re bound to run into many back-to-school sales this time of year, you don’t need to buy 12 notebooks just because they’re cheaper right now. In fact, you shouldn’t assume the sales price is the best price at all, said consumer savings expert Andrea Woroch. Instead, always comparison shop.

“Run a quick Google search online or on your phone to see if another store is selling the same or a similar item for less,” she said. “Most big box stores will price match, so you won’t even have to drive to another store to get the better deal.” For example, Target,Staples and Walmart all have price matching policies.

Clip coupons and shop discount stores

Coupons have definitely made a digital comeback, with countless apps and websites dedicated to listing all your options in one place. “Spending a few minutes looking for coupons can help you get a better discount,” Woroch said. “Use apps like CouponSherpa, for instance. Or, use the Honey browser tool, which automatically searches and applies relevant coupons to your online order.”

Many stores also offer discounts to valued customers who sign up for their rewards program, like Walgreens and CVS, while craft stores like Michaels regularly offer discounts. Don’t knock purchasing basics like paper and writing supplies from the Dollar Tree, either — you might be surprised by what you find, and those types of items are often the same quality wherever you buy them.

Tax advantage of tax-free holidays

On select dates throughout the year, different states offer state sales tax holidays, or days where you can purchase items without having to pay sales tax on them. You can find a full list of the 2019 state sales tax holidays here, but some upcoming ones include:

  • August 18-24: Connecticut, clothing and footwear
  • August 17-18: Massachusetts, specific items costing less than $2,500 per item

Split bulk purchases

You can usually save money by buying certain items — like construction paper, pens, pencils and folders — in bulk, but you can save even more by splitting those bulk items with other families. Not only is this a great way to share savings, Woroch said, but you can earn rewards faster by charging everything on your card and then having the families pay you back.

Redeem your rewards

If you have a cash back credit card, now’s the time to use it. “Most credit cards give you the best redemption value when you opt for statement credit or have the cash rewards deposited into your bank,” Woroch said. “You can set this money aside for back-to-school shopping.”

Alternatively, Woroch suggested checking to see if your particular card allows you to redeem points for gift cards to retailers where you plan to shop.

Use discounted gift cards

Besides redeeming credit card points for retailer gift cards, you can also scour the web for cheap gift cards online. Planning a trip to Target? Scan websites like Raise,Cardpool and CardCash first. These sites buy and sell unused gift cards at a discount, meaning you can save on purchases you were planning to make anyway.

Consider having your kids contribute

Depending on your child’s age, back-to-school shopping might be the perfect time to start having them contribute to their own goods, especially if they earn an allowance or have a job. Talking to your kids about money at a young age — whether about budgeting, saving or spending — will help them develop solid money habits that will pay off in the future.

Parents already seem to be catching on to this idea. “It was surprising to see how much of their own money kids are contributing towards the back-to-school bills,” Mathews said. “Teens and pre-teens will be spending $63 of their own money, which works out to $1.5 billion overall. This is significantly higher than the levels we saw a decade ago.”

Although the news about increased spending on back-to-school supplies may be alarming, these days there are more ways than ever to save. A little ingenuity, resourcefulness and research can go a long way.

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.

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at [email protected]

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Survey: Most Americans Have Raided Their Retirement Savings

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Successfully saving for retirement requires dedication and self-restraint, but more than half the country admits to robbing their future selves in order to satisfy today’s spending needs, according to a new survey by MagnifyMoney. While the economic pressures bearing down on workers today make their actions understandable, the hard truth is that many Americans are turning an already-difficult task that much harder by tapping into their retirement savings early.

Key Findings

  • Approximately 52% of respondents admit to tapping their retirement savings account early for a purpose other than retiring: 23% have done so to pay off debt, 17% for a down payment on a home, 11% for college tuition, 9% for medical expenses, and 3% for some other reason.
  • About 29% say there are some scenarios where it is a good idea to withdraw money early from a retirement savings account.
  • Around 60% of respondents do not know exactly how much they have saved for retirement. Just 40% know the exact amount, while 45% have a rough idea, and 15% have no clue.
  • Almost 25% are unhappy with their retirement savings. 47% are happy with the amount saved, and about 28% are neither happy nor unhappy.
  • Finally, 27% have never thought about how much money they’ll need in retirement.

Why are Americans tapping their retirement savings early?

The two main reasons respondents cited for withdrawing money from their retirement savings are as American as apple pie: home ownership and personal debt. According to the survey, 23% of those making an early withdrawal did so to help pay down non-medical debt, while 17% needed the money for a down payment on a home.

Although the housing market appears to be cooling off compared to just a few years ago, a down payment on a home still requires a significant chunk of change — experts recommend a down payment equaling 20% of the total mortgage to optimize your mortgage payments.

Personal debt, from credit cards to student loans, remains a fixture of everyday economic reality for millions of Americans. In other words, the stressors that cause workers to raid their retirement funds don’t look like they will decrease appreciably in the foreseeable future.

Which Americans are withdrawing money the most?

Breaking down the demographics, older savers are less likely to withdraw money from their retirement fund than younger savers. 54% of millennial savers say they’ve taken an early withdrawal from a retirement savings account, compared with 50% of Gen Xers and 43% of baby boomers. This stands to reason considering that many millennials have now entered the stage of life where they are getting mortgages, starting families and taking on bigger financial obligations while also being decades away from the traditional retirement age. Millennials are also more likely to say that raiding your retirement fund is justified under certain circumstances, as seen in the chart below:

Just one of many bad retirement savings habits

Tapping into retirement funds — whether an employer-sponsored 401(k) or a traditional IRA — before the appropriate age almost always comes with a financial penalty in the form of additional taxes and fees. What is more, you’re diminishing the principle that fuels the compound interest you need to meet your retirement savings goals.

Unfortunately the survey reveals early withdrawals are just one of the many bad habits Americans engage in when it comes to retirement savings. This list of less-than-ideal practices includes:

  • 35% of Americans are not currently saving for retirement. Of those who are, 37% started saving at age 30 or above, and 12% started saving when they were older than 40.
  • 60% of Americans do not know exactly how much they have saved for retirement. Just 40% know the exact amount, while 45% have a rough idea and 15% have no clue.
  • Nearly 1 in 5 Americans don’t contribute enough to their employer-sponsored retirement account to get the maximum company match. Maximizing a company match is one of  your best ways to maximize your retirement savings. Among those with an employer-sponsored retirement savings plan, just 17% of respondents contribute 10% or more of their take-home pay. Almost 5% contribute nothing at all, and nearly 6% are unclear about how much they contribute.

  • Approximately 42% of respondents have made the mistake of withdrawing their entire balance from an employer-sponsored retirement plan when changing jobs without rolling it over – and nearly 15% have done so more than once. A little more than 47% of millennials admit to this faux pas.

The most damning finding of all is that 27% of those surveyed have never thought about how much they’ll need in retirement. And while “ignorance is bliss” may hold true when it comes to some things in life, this expression should not apply to your retirement plans.

Methodology

MagnifyMoney by LendingTree commissioned Qualtrics to conduct an online survey of 1,029 Americans, with the sample base proportioned to represent the general population. The survey was fielded June 24-27, 2019.

Generations are defined as:

  • Millennials are ages 22-37
  • Generation Xers are ages 38-53
  • Baby boomers are ages 54-72

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.

James Ellis
James Ellis |

James Ellis is a writer at MagnifyMoney. You can email James here