by Phil Yacuboski
Thanks to a $10,000 cap on state and local tax deductions otherwise known as SALT, some tax experts believe more and more people may be leaving high-tax states such as New York and New Jersey, to save money.
“Pennsylvania is attracting some of those people. Most definitely,” said Alan Goldenberg, a principal at Friedman LLP, a New York City tax and business consulting firm. “It all comes down to the tax rates. If you live in New York or New Jersey, your tax rate is just under nine percent. If you live in New York City, it’s more than 12%. And when you move to Pennsylvania, you’re looking a three percent tax rate. That’s a pretty significant savings for people.”
President Trump’s ‘Tax Cut and Jobs Act,’ affects nearly 11 million taxpayers, according to the U.S. Treasury Inspector General for Tax Administration. Some argue the law was created to punish high tax states run by Democrats. Some states tried developing alternatives and ‘workarounds,’ but those have been eliminated by the IRS.
There’s a mutual agreement between Pennsylvania and New Jersey too, that could make the situation even more attractive. People living in Pennsylvania and working in New Jersey are not subject to New Jersey income taxes; rather they pay Pennsylvania’s rates, which are far lower.
“Typically if you live in one state and work in another, those are the taxes that are withheld from your paycheck,” he said. “That’s huge because Pennsylvania would only give a resident a credit for the tax rate paid to New Jersey up to whatever their tax rate would be. It’s really a big help for those people.”
He said many people are escaping to states where there’s no income tax like Texas, Nevada and Florida. Pennsylvania has flat 3.07% income tax rate. “For people who need to keep their place of employment in the northeast, Pennsylvania is very attractive,” said Goldenberg.
Geoffrey Weinstein, special counsel in the Tax, Trusts and Estates Department of the law firm of Cole Schotz, said for people who are regionally tied to the northeast, Pennsylvania is a slam dunk.
“They have family here or have a regional office here and that makes it easier to stay in the northeast,” said Weinstein.
He said many people are able to live the same lifestyle in Pennsylvania or even better because property is cheaper.
“It’s a great option for people who are high-net-worth individuals who are sick and tired of paying an 11% income tax,” said Weinstein.
According to the 2019, State Business Tax Climate Index compiled by the Tax Foundation, a Washington, D.C.-based think tank, Pennsylvania ranks 34th when it comes to state income tax rates. New York is 48th and New Jersey is 50th. New Jersey also has some of the highest property tax rates in the country, according to the analysis.
“If you make nine or 10 million dollars a year, that’s an extra one million dollars to live in New Jersey,” he said.
Weinstein said some homeowners in New Jersey pay upwards of $70,000 to $80,000 in property taxes per year.
“Not being able to deduct that is big,” he said. “Clearly there are benefits to living in Pennsylvania.”
It’s no secret that what used to be the wide open space of the Pocono Mountains is slowly getting gobbled up with housing developments – those seeing refuge from higher taxes and even a quieter lifestyle.
“It’s really been the case since 2001,” said Nicole Murray, president for the Pocono Mountains Association of Realtors. “We have seen different shifts.”
She doesn’t think property taxes are the main reason people are relocating.
“It’s commutable and that’s a big benefit,” she said. “That cap is a big benefit to us.”
Murray said what is also truthful is buyers get a lot more house for their money in Pennsylvania.
“It’s an easy commute and they are great wages,” she said.