Florida no state income tax but higher Federal AGI as a result. Is it a $$ wash?

[ankaratop]

I have been striving to keep up with requirements to be out of state up north over 183 days to use the no Florida income tax option, but with Covid and travel issues I wondered if it really makes a difference. For example: If I pay my northern income tax my federal tax (AGI) should be less. Does the state and Federal tax total remain higher than if I use residency in Florida and pay a higher Federal tax? I would imagine this is an issue for many people (keeping up with location 6 plus months) so I'd like to hear if people have worked it out and still see the value or is it "6 one, half dozen the other."

Thanks

[DianeW777]

Your federal income won't change based on your state of residency.  If you itemize deductions then you may have a higher state tax deduction based on the state income tax paid. 

States determine their residency requirements.  The following are the requirements for Florida (FL).

Florida Residency: 

You are considered a Florida resident … when your true, fixed, and permanent home and principal establishment is in Florida. Filing a declaration of domicile, qualifying for homestead exemption, or registering to vote in Florida can establish residency. Other actions, such as obtaining a Florida driver’s license, only indicate the intent to establish residency.

You can use the link here to determine the residency status for your state up north.  How do I contact my state Department of Revenue?

[ankaratop]

Yes I have residency. I plan on meeting the 6 month out of state requirement. My point of the question is this:

If I cannot make the 6 months in a particular year,  I pay MN state tax, my Federal AGI goes down. The question is does the combination of MN tax and reduced Federal equal to Higher Federal only with no FL tax?

[Anonymous_ · Accepted solution]

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@ankaratop wrote:

The question is does the combination of MN tax and reduced Federal equal to Higher Federal only with no FL tax?

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There is a simple (relatively, at least) way to make this determination and it only involves your federal marginal tax bracket and your MN tax liability.

The quick answer to your ultimate question is almost certainly, "No, you do not pay more in combined federal and MN state tax than you would with federal-only and no MN state tax (the latter with a higher AGI). The rationale for the foregoing is that when you pay MN state tax you pay 100% on the dollar while the federal income tax savings for not paying MN tax is not dollar-for-dollar. 

You can play around with the numbers in TurboTax very easily and I am virtually certain you will discover that you are far better off without the MN tax liability than with it, albeit at a lower federal AGI.

[ankaratop]

Thanks so much! I will compare the two options but it’s very helpful to hear your input!