Which would not ordinarily be a thing to blog about. So it’s an odd commentary on the times when doing my taxes was a pleasant change in routine.
I owed a bunch of money to the Commonwealth this year. I figured that the Governor would appreciate receiving it in a timely fashion, all things considered. So I did my taxes yesterday.
The deadline for Virginia is June 1 this year. The Commonwealth says that if you pay by June 1, no penalties or interest are due. (My tax software said differently, so I’m not sure what the deal is.)
The Federal deadline, by contrast, is July 15.
So this year your Virginia income tax is due before your Federal. But you have to fill out your Federal forms first, anyway, in order to do the Virginia form. In terms of the time and hassle cost, tax day here in the Commonwealth is effectively June 1, no matter what the Feds say.
This was my first tax year in pure retiree mode, and boy was it an eye-opener.
I ran my own little business here in Vienna until August 2018. And I paid full freight, tax-wise. As a self-employed person, you start off by paying both halves of Social Security and Medicare. So that’s about 16% off the top. (You get a bit of that back, as a deduction.) And then you pay the rest. The Town got its slice (Gross Receipts tax), then the Commonwealth, then the Feds.
To a pretty close approximation, my combined marginal tax rate used to be above 50%, and my average tax rate was about 33%. That’s with stuffing as much as I legally could in an SEP-IRA.
To which my daughter would say, first-world problem. Because it meant that I had a good job and my business wasn’t going bust.
But now? No wage income means no social security. Investment income means many of those lovely tax dodges set up for rich people now apply to me. Add in some reduction in income, toss with progressive tax rates. And voila: I ended paying an average Federal rate of about 9%, and a marginal rate just slightly higher than that.
Which is, oddly enough, how I ended up owing so much to the state. Back in the day (meaning, when I was working), Virginia taxes weren’t exactly rounding error, but compared to the Federal bite, they looked pretty darned reasonable.
And so, when I figured total taxes for withholding, I did my Federal, and used a rule-of-thumb for State. Which is now wrong, because I now get all the geezer-related tax breaks from the Feds, but nothing like that from the Commonwealth.
Weirdly, the Commonwealth’s tax bite is the same as it always ways. But now that my Federal rate is so ludicrously low, I’m kind of resenting the Virginia rate.
In the end, good sense prevails. I’ve always thought I got excellent value for my Virginia tax dollar. I’m not going to change my mind on that, now that I’m retired. As stated, I suspect that the Commonwealth needs my money right about now. So I got ’em done.