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

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%.

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.

Methodology: Using IRS Statements of Income data, we aggregated the data for five years, for returns filed from Jan. 1, 2012 – Dec. 31, 2016 in the 100 largest U.S. metros.

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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.