Florida is one of the most tax-friendly states in the country. The main reason for that is that the Sunshine State doesn’t levy a state income tax. Basically, the state government largely funds its operations through sales taxes, fees, and revenue from the federal government.

While in Florida there’s no state income tax, it’s worth mentioning that the state does tax corporate profits. Therefore, if you own a company that’s based in Florida, you may have to pay some taxes to the state government.

Whether you’re already living in Florida or considering a move there, there are some things you should know about state taxes there. Let’s get started!

How is personal income taxed in Florida?

As mentioned above, the tax percentage rate in the Sunshine State is 0% for personal income taxes. Now, if you own a business that’s running in Florida, you’re subject to a 4.458% corporate income tax.

Those who fall into this category are required to file Florida corporate tax returns electronically, especially if they paid $20,000 or more in Florida corporate income tax during the prior state fiscal year.

The Sunshine State may not tax personal income, but keep in mind that there’s a federal income tax you may be subject to. As you may already know, there are seven federal income tax brackets. Your filing status and your taxable income determine which tax rates apply to you. Head to the IRS website to identify your federal income tax bracket for tax year 2023.

Are retirement income and pensions taxed in Florida?

Why do many retirees choose to spend their golden years in the Sunshine State? There are obvious reasons, like the great weather and a bevy of outdoor activities like fishing and golfing, but we shouldn’t overlook the hard-to-beat tax benefits of retiring to Florida as well.

So, the answer to the question above is no; retirement income isn’t taxed in Florida. Since the Sunshine State doesn’t have a personal income tax, distributions from 401(k)s, 403(b)s, IRAs, and pensions aren’t taxed at the state or local level.

In addition to these tax benefits for seniors, the cost of living in the Sunshine State is about the same as the national average.

What about investment income?

Capital gains refer to the profits earned from the sale of capital assets such as bonds, stocks, and real estate. Capital gain taxes are, therefore, what you pay on those profits. It’s worth mentioning that this tax is triggered only when you sell your asset, so you don’t have to worry about paying taxes as long as you own the property.

There’s no capital gains tax in Florida, but you still have to pay federal taxes if you sell a house in the state. The exact tax rate you’re subject to depends on several factors, including your income level and how long you’ve owned the property.

Does Florida tax Social Security benefits?

The answer is no, but you may have to pay federal taxes on a fraction of your Social Security benefits, depending on your income level. As much as 50% of your retirement benefits will be taxed if you file an individual tax return and your income falls between $25,000 and $34,000. The same tax rule applies if you file jointly and have a combined income of between $32,000 and $44,000.

However, if you earn more than $34,000 individually or $44,000 as a couple, you have to pay taxes on up to 85% of your retirement benefits.

Keep reading to see what other taxes you may have to pay if you live in Florida!

How is property taxed in Florida?

Property tax in the Sunshine State is a county tax that’s based on an estimation of how much your house is worth. Houses are appraised for market value as of January 1 of every year. The average tax rate is 0.98% of the assessed value of your property, but property taxes vary across the state.

If you’re a resident of Florida, you may qualify to claim a property tax break of up to $50,000 on your permanent home via Florida’s homestead exemption. Moreover, if you’re 65 or older, you may be eligible for an extra exemption of as much as $50,000. Additional discounts are offered for eligible widows, widowers, and veterans 65 and older.

What about sales tax and other taxes?

When it comes to sales and use tax, there’s a 6% tax on many (but not all) consumer services and goods. Counties may come up with an extra tax of up to 1.5%, but there are some counties that don’t levy the surtax.

There’s a maximum of $5,000 on the local surtax in various cases, including on vehicles, aircraft, mobile homes, and boats. According to the Tax Foundation, the average combined rate is 7.02%.

Regarding groceries, Florida doesn’t tax most of them, although some prepared food intended for immediate consumption (like sandwiches, for instance) is taxable. Nonprescription and prescription drugs aren’t taxed, and neither are most over-the-counter medical items and medical equipment. Contact lens solution, on the other hand, is taxable. Clothing is also taxed.

Florida’s use tax applies to things purchased out of state when brought into the Sunshine State within six months of the purchase date. Examples include furniture delivered from another state and items bought online. The use tax doesn’t apply if you paid a sales tax of 6% or more to the out-of-state seller.

Florida’s gas tax is adjusted annually. As of January 1, 2023, the state’s gas tax is 0.35225, which is 0.018 cents more per gallon compared to 2022. The gas tax rates also vary by county.

When it comes to alcohol, wine is taxed between $2.25 and $3.50 per gallon, depending on its alcohol content and whether it’s sparkling wine. Beer is taxed at $0.48 per gallon. The tax rate for liquor varies between $2.25 and $9.53 per gallon, depending on the alcohol content. The purchase of wine, beer, and liquor is also subject to the state’s general sales tax plus any extra surtax imposed by the country.

Florida also doesn’t levy a commuter tax. In 2023, Florida drivers will get a 50% discount on tolls provided they have at least 35 toll transactions during a month.

There’s no tax on lottery winnings in Florida, but you’ll still have to pay federal income tax on your prize money.

Will I or my heirs owe inheritance and estate taxes in Florida?

The Sunshine State doesn’t levy inheritance or estate taxes. If there’s no joint tenant or surviving spouse, the deceased’s house won’t be eligible for the homestead exemption starting the next year after the owner’s death.

However, if the owner was married, the surviving spouse will continue to receive this exemption for as long as they own the property as her or his permanent residence. The same thing applies to a joint tenant owner, provided they have a right of survivorship and meet certain criteria.

Do older Florida residents benefit from tax breaks?

Residents 65 or older may qualify for a property tax rate as well as a homestead exemption set by a local government. Check out this page to learn more county-specific information about property tax exemptions and assessments.

Veterans 65 and older who are totally or partially disabled may get an additional homestead property discount. Also, as of 2023, widowers and widowers can get a $5,000 property tax exemption.

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