Delaware is known for being one of the most tax-friendly states in the US. With more than 60% of Fortune 500 companies registered in Delaware, it’s no wonder that some of the country’s largest businesses choose to call this state their home. But what about the taxes that regular citizens need to pay? In this article, we’ll take a closer look at some of the taxes that residents need to be aware of in Delaware.
Firstly, let’s talk about income tax. Like most states, Delaware has a progressive income tax system, which means that your tax rate will increase as your income increases. At the time of writing, the tax rates range from 2.2% to 6.6% depending on your income bracket. Delaware also has a state tax on gambling winnings, which is at a flat rate of 24%. So, if you’ve hit it big at one of the state’s many casinos, don’t forget to set aside some money for your tax bill!
Aside from income tax, Delaware also has a sales tax of 0%. That’s right – Delaware is one of the few states in the US that doesn’t charge a sales tax on purchases. This makes it an attractive state for shoppers, as they can save on big-ticket items like electronics and appliances. However, it’s worth noting that there are still other types of taxes that you may need to pay in Delaware, such as property tax and vehicle tax. So, if you’re planning to move to or invest in Delaware, it’s important to understand the full spectrum of taxes that may impact you.
Types of Taxes in Delaware
Delaware has a reputation as a tax-friendly state. Known for its low property taxes and absence of sales tax, Delaware’s tax code is considered beneficial to its residents. However, this does not mean that Delaware has no taxes at all. Here are the types of taxes that residents and businesses alike must pay in the state:
- Income Tax: Delaware imposes a progressive income tax on its residents, with rates ranging from 2.2% to 6.6%. Non-residents who earn income in Delaware are also subject to income tax.
- Corporate Income Tax: Corporations operating in Delaware or deriving income from sources within the state are subject to corporate income tax. The tax rate is a flat 8.7% of taxable income.
- Franchise Tax: Delaware is well-known as a corporate haven, and this is partly because of its low franchise tax rates. All Delaware corporations, including non-profits, must pay an annual franchise tax. The tax rate is based on the number of authorized shares that the corporation has, with a minimum tax of $175.
- Property Tax: While Delaware has relatively low property taxes compared to other states, it still collects some property tax revenue from its residents. The average effective property tax rate in Delaware is around 0.56%.
- Estate Tax: Delaware has an estate tax that applies to estates valued at $5.49 million or more. The tax rate ranges from 0.8% to 16% of the estate’s value, depending on the value of the estate.
Overall, Delaware’s tax code is considered attractive to individuals and corporations due to its low rates and various tax incentives. However, it is important to note that while Delaware may have lower taxes compared to some other states, it still requires its residents and businesses to pay taxes in order to support state services and infrastructure.
Delaware Income Tax
Delaware levies a state income tax ranging from 0% to 6.6%, with a top marginal rate of 6.6% on income over $60,000. Delaware’s individual income tax system is composed of seven brackets, with the lowest rate applying to income up to $2,000 and the highest rate applying to income over $60,000.
- The first bracket covers taxable income from $2,001 to $5,000 and has a tax rate of 2.2%.
- The second bracket covers taxable income from $5,001 to $10,000 and has a tax rate of 3.9%.
- The third bracket covers taxable income from $10,001 to $20,000 and has a tax rate of 4.8%.
- The fourth bracket covers taxable income from $20,001 to $25,000 and has a tax rate of 5.2%.
- The fifth bracket covers taxable income from $25,001 to $60,000 and has a tax rate of 5.55%.
- The sixth bracket covers taxable income from $60,001 to $125,000 and has a tax rate of 6.6%.
- The seventh bracket covers taxable income over $125,000 and has a tax rate of 6.6%.
Individuals who earn income in Delaware are generally required to file a state income tax return. Delaware residents must file if their gross income is equal to or greater than the sum of their standard deduction plus personal exemption. Non-residents who earn income in Delaware must also file if their gross income from Delaware sources is equal to or greater than the sum of their standard deduction plus personal exemption.
Delaware offers a standard deduction of $7,500 for single filers and $15,000 for married couples filing jointly. The personal exemption is $110 for each taxpayer, spouse, and dependent.
| Delaware Income Tax Brackets | Marginal Tax Rate |
|---|---|
| $2,001 – $5,000 | 2.2% |
| $5,001 – $10,000 | 3.9% |
| $10,001 – $20,000 | 4.8% |
| $20,001 – $25,000 | 5.2% |
| $25,001 – $60,000 | 5.55% |
| $60,001 – $125,000 | 6.6% |
| Over $125,000 | 6.6% |
Delaware’s income tax revenue is used to fund essential government services, such as public education, healthcare, and infrastructure projects. To avoid any penalties or fines, residents and non-residents who earn income in Delaware should ensure they file their state income tax returns on time and accurately.
Delaware Sales Tax
Delaware is one of the few states in the US that does not have a statewide sales tax. This means that there is no sales tax on retail purchases made in Delaware. This is great news for consumers as it means they can avoid paying the extra cost that comes with a sales tax. However, it also means that the state of Delaware misses out on the revenue generated from a sales tax.
What is a Sales Tax?
- A sales tax is a tax on retail purchases made within a state.
- The tax is usually a percentage of the purchase price.
- The revenue generated from the sales tax goes to the state government.
Other Taxes in Delaware
While Delaware may not have a statewide sales tax, there are other taxes that residents and businesses need to be aware of. These include:
- State Income Tax: Delaware has a progressive state income tax rate that ranges from 0% to 6.6%, depending on income.
- Property Tax: Property tax rates in Delaware vary by county and municipality.
- Corporate Income Tax: Delaware has a flat corporate income tax rate of 8.7%.
Impact of No Sales Tax on Delaware’s Economy
Delaware’s lack of a sales tax has both positive and negative impacts on the state’s economy. On the one hand, it attracts consumers from neighboring states who come to Delaware to take advantage of the lack of sales tax. This can boost retail sales and tourism in the state. On the other hand, the lack of a sales tax means that Delaware misses out on the revenue that would have been generated from a sales tax. This can impact the state’s ability to fund public services and infrastructure projects.
| Pros | Cons |
|---|---|
| Increases retail sales and tourism | Misses out on revenue generated from a sales tax |
| Makes Delaware an attractive location for businesses | Relies on other taxes to fund public services and infrastructure |
Overall, while the lack of a sales tax may have some negative impacts on Delaware’s revenue, it remains a unique selling point for consumers and businesses.
Property Tax in Delaware
In Delaware, property taxes are an important source of revenue for local governments. These taxes are usually levied by the county or municipal government and are based on the value of the property being taxed. The revenue generated by property taxes is used to fund the local government, including schools, law enforcement, and other services.
What Determines Property Tax Rates in Delaware?
- The assessed value of the property
- The tax rate set by the local government
- Exemptions and deductions for certain types of properties or certain groups of taxpayers
How Are Property Taxes in Delaware Calculated?
The calculation of property taxes in Delaware is based on the assessed value of the property and the tax rate set by the local government. The assessed value is determined by the county or municipal government and is usually based on the fair market value of the property. The tax rate is expressed as a percentage of the assessed value and is set each year by the local government based on their budget needs.
For example, if the assessed value of a property is $200,000 and the tax rate is 1.5%, the property taxes owed would be $3,000 (200,000 x 0.015). Property owners in Delaware receive a tax bill for their property taxes annually.
Property Tax Exemptions and Deductions in Delaware
Delaware provides several property tax exemptions and deductions for certain types of properties or certain groups of taxpayers. These include:
| Exemption/Deduction | Eligibility Requirements |
|---|---|
| Senior Citizen Tax Credit | Age 65 or older, primary residence, annual income less than $10,000 |
| Disabled Persons Tax Credit | Permanent disability, primary residence, annual income less than $10,000 |
| Property Tax Exemption for Veterans | Veteran of US Armed Forces, primary residence, 100% disabled in service |
| New Construction Exemption | Newly constructed residential or commercial property, exemption for the first full tax year |
Property owners in Delaware should check with their county or municipal government to see if they are eligible for any of these exemptions or deductions.
Delaware Corporate Income Tax
Delaware is a tax-friendly state when it comes to businesses. The state does not levy a sales tax, and there is no personal property tax. This makes it an attractive destination for companies looking to establish a presence in the United States. However, corporations in Delaware are required to pay corporate income taxes.
- Corporate Income Tax Rate: The corporate income tax rate in Delaware is a flat rate of 8.7%. This rate is applicable to all corporations, regardless of their income level.
- Filing Deadline: The deadline for filing corporate income tax returns in Delaware is March 15th. However, corporations can request a six-month extension by filing Form 1027.
- Estimated Taxes: Corporations in Delaware are required to make quarterly estimated tax payments. The due dates for these payments are April 30th, July 31st, October 31st, and January 31st.
It is important to note that S corporations and limited liability companies (LLCs) that are taxed as partnerships are not required to pay corporate income taxes in Delaware. Instead, these entities pass their income and deductions through to their shareholders or members, who then report the income on their personal income tax returns.
Delaware also offers a number of tax incentives and credits to businesses, such as the New Economy Jobs Tax Credit and the Research & Development Tax Credit. These incentives can help reduce a corporation’s tax liability and make Delaware an even more attractive destination for businesses.
| Tax Type | Rate |
|---|---|
| Corporate Income Tax | 8.7% |
In summary, while Delaware is a tax-friendly state for businesses overall, corporations are required to pay corporate income taxes. However, S corporations and LLCs that are taxed as partnerships are exempt from this requirement. Additionally, Delaware offers a variety of tax incentives and credits that can help businesses lower their tax liability.
Estate Tax in Delaware
If you are a resident of Delaware, or own property within the state, it is important to understand the estate tax laws that may apply to you or your heirs. Estate taxes are taxes levied on assets transferred from a deceased individual to their beneficiaries. In Delaware, estate taxes are levied on estates with a value of over $5,850,000, as of 2020.
The estate tax rate in Delaware ranges from 0.8% to 16%, depending on the value of the estate. Estates valued at more than $10,040,000 are subject to the maximum rate of 16%. However, for estates valued at less than $5,850,000, no estate tax is assessed.
What Assets Are Included in Your Estate?
- Cash and bank accounts
- Real estate, including your primary residence and any vacation or investment properties you own
- Business interests, including ownership in any partnerships or LLCs
- Stocks, bonds, and other investment accounts
- Retirement accounts, such as IRAs and 401(k)s
- Life insurance proceeds if payable to your estate
How to Minimize Estate Taxes in Delaware
Planning can help minimize the estate taxes that will be due upon your death. Some strategies to consider include:
- Gifting assets during your lifetime, as annual gifts of up to $15,000 per person per year are not subject to gift tax
- Transferring assets to a trust, which can provide tax benefits and asset protection
- Using life insurance to pay estate taxes and leaving other assets to beneficiaries, as life insurance proceeds are generally not subject to estate taxes
Delaware Estate Tax Exemption
In 2017, Delaware passed legislation phasing out the estate tax over a three-year period. As of January 1, 2018, the estate tax exemption in Delaware increased to $5.6 million. As of January 1, 2019, the estate tax was fully phased out.
| Estate Tax Exemption | Estate Tax Rate Range |
|---|---|
| $5,850,000 or less | No estate tax |
| $5,850,001 to $10,040,000 | 0.8% to 16% |
| Over $10,040,000 | 16% |
As of 2020, estate taxes are no longer assessed by Delaware, although it is important to keep up with any updates or changes to estate tax laws.
Inheritance Tax in Delaware
In Delaware, the inheritance tax is a tax on property that is transferred from a deceased individual to another individual. This tax is different from the estate tax, which is a tax on the total value of a deceased individual’s estate.
- The inheritance tax applies to property that passes to certain relatives of the deceased individual in Delaware, including spouses, children, grandchildren, parents, siblings, and other close relatives.
- The tax rates for inheritance in Delaware vary depending on the relationship between the deceased and the recipient. For example, the tax rate is 0% for transfers to a spouse or the parents of a minor child, but can range from 2.2% to 16% for transfers to more distant relatives.
- However, Delaware does not have an inheritance tax for property that passes to charities or non-profit organizations, regardless of the relationship between the deceased and the recipient.
It is important to note that the inheritance tax is different from the federal estate tax. While the inheritance tax is a state tax, the federal estate tax applies to the total value of an individual’s estate and is subject to a different set of rules and exemptions.
If you are facing an inheritance tax situation, it is advisable to consult with a qualified tax professional or attorney to fully understand your obligations and options.
| Recipient of Property | Tax Rate |
|---|---|
| Spouse | 0% |
| Parent of minor child | 0% |
| Child or grandchild | 0.8% |
| Sibling | 1.6% |
| Niece or nephew | 3.3% |
| Other relative | 5.2% to 16% |
Overall, understanding the inheritance tax in Delaware is an important step in managing your estate planning and ensuring that your assets are distributed according to your wishes.
FAQs: What Taxes Do You Have to Pay in Delaware?
1. What is the state income tax rate in Delaware?
Delaware has a progressive income tax system, with rates ranging from 2.2% to 6.6%. The tax rate depends on your income level, with higher earners paying a higher percentage.
2. Are there any sales taxes in Delaware?
No, Delaware does not have a statewide sales tax. However, there are local taxes that may apply to certain purchases, such as lodging or rental cars.
3. Are there any property taxes in Delaware?
Yes, Delaware has property taxes. The rate varies depending on where you live and the assessed value of your property. Senior citizens may be eligible for property tax relief.
4. Are there any inheritance taxes in Delaware?
No, Delaware does not have an inheritance tax. However, some estates may be subject to federal estate tax.
5. Are there any corporate taxes in Delaware?
Yes, corporations doing business in Delaware are subject to an annual franchise tax. The tax rate varies depending on the company’s size and type of business.
6. Are there any other taxes I should be aware of in Delaware?
Yes, there are a few other miscellaneous taxes in Delaware, such as the gross receipts tax, tobacco tax, and hotel occupancy tax. Be sure to check with the Delaware Division of Revenue for more information.
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We hope this article helped answer your questions about what taxes you have to pay in Delaware. Remember to consult a tax professional for personalized advice. Thanks for stopping by and be sure to check back for more informative articles!