Most local governments in the US take property taxes as the main source of revenue. These taxes are crucial for funding a myriad of public services, ranging from schools and libraries to police departments and road construction.
As a homeowner, understanding how property taxes work is essential. Being aware of what property taxes are and how they are calculated gives you a better idea of how to pay them.
If you’ve just bought your first property and have no idea how to pay the property tax, this detailed guide is for you. The article explains what property taxes are, why they are so important for local governments, and how to pay them using suitable payment methods.
What Are Property Taxes?
Definition
A property tax is a tax levied by a local government and paid by the property owner. Property taxes are also referred to as ad-valorem taxes, meaning that the annual or semiannual charge is based on the assessed value of the property.
Purpose
Tax revenues, in general, play a crucial role in funding the US government. In fact, local governments heavily rely on the property tax revenue to fund vital public services.
Without property taxes, local governments wouldn’t be able to fund schools, police and fire departments, emergency medical services, road construction and repairs, and more.
Basically, local governments use the revenue generated from property taxes to ensure that the residents have the resources they need to maintain properly functioning communities.
How Are Property Taxes Calculated?
Assessment of Property Value
1.Property Assessment
- As the property tax is determined based on the real estate value, your property has to be assessed by either a government-appointed assessor or an independent appraiser. Your local tax authority then uses the assessed value to calculate your property tax.
- The property value depends on multiple factors, such as its size, condition, age, neighborhood appeal, and overall market value. As these factors may change over time, local governments reassess property values every 1-4 years, depending on your location.
2.Assessment Rate
- The assessment rate is a percentage or statutory rate, which is multiplied by the fair market value of the property to determine the assessed taxable value.
- Let’s say the actual market value of the property is $250,000 and the assessment rate is 80%. Then, the taxable value of the property would be $200,000.
Tax Rate
1.Local Tax Rate (Mill Rate)
- Millage, or mill rate, is a local tax rate that can be defined as the dollars assessed for every $1,000 of the assessed value. One mill equals 1% and represents one dollar per $1,000 of taxable property value.
- For example, if the millage rate is 15 mills, the local tax rate will be 1.5%, or $1.5 per $1,000 of the assessed property value.
2.Calculation of Property Tax
- To calculate the property tax you owe, you should multiply the assessed property value by the % mill rate and divide it by 100. Alternatively, you can multiply the assessed value by the mill rate in mills and divide it by 1,000.
- For instance, if the assessed property value is $200,000 and the mill rate is 15 mills, the property tax you owe would be $3,000 per year ($200,000 x 1.5% / 100%).
Where to Pay Property Taxes
Local Tax Office
1.County Treasurer’s Office
- In most counties, you can pay the property tax at the County Treasurer and Tax Collector Offices. A government officer will collect the property tax you owe using the payment method of your choice.
2.Municipal Tax Office
- In some areas, you can pay your property taxes to municipal tax offices directly. A government official responsible for collecting taxes will walk you through the process.
Online Payment Portals
1.Government Websites
- To make the tax payment process more straightforward, many local governments offer an online payment option through the official website. You can choose the desired electronic payment method and pay the property taxes with just a few clicks.
2.Third-Party Payment Services
- Under some jurisdictions, you may be able to pay property taxes through third-party platforms. Although you’ll be charged a small processing fee, the overall process is incredibly convenient.
Mail and In-Person Payments
1.Mail
- In most cases, you’ll be able to pay the property taxes through the mail by sending a check or money order. When doing so, it’s important to verify the tax collector's address and send a postmarked payment by the delinquency date. Otherwise, you may get penalized for submitting the payment late.
2.In-Person
- To ensure that your property tax is collected on time, you can make an in-person tax payment. This can be done by visiting the treasurer’s office or the municipal tax office in your area.
Payment Methods
Accepted Payment Methods
1.Checks and Money Orders
- You can pay the property tax through a check or money order in most counties. For the tax office to accept your payment, make sure to include accurate details and the property identification number when sending the check or money order.
2.Credit and Debit Cards
- Many municipal tax offices accept credit and debit cards, allowing you to easily pay the property tax you owe. To submit the payment via a credit or debit card, you can also refer to official government websites. Keep in mind that credit and debit card payments may come with an additional processing fee.
3.Electronic Funds Transfer (EFT)
- Whether through online platforms or directly from bank accounts, some tax offices enable homeowners to submit payments via electronic fund transfer (EFT).
4.Cash
- While cash payments are usually accepted when paying in person, this method is not recommended for submitting large amounts of money. For safety reasons, large payments should be submitted through checks, money orders, credit/debit cards, and EFTs that can be traced if needed.
Payment Plans and Installments
1.Payment Plans
- Along with multiple payment options, some states and counties offer payment plans to make the tax submission process more manageable for certain groups of homeowners. Payment plans give you flexible schedules to pay your property taxes over time.
2.Installments
- Under some jurisdictions, you may be able to pay property taxes through third-party platforms. Although you’ll be charged a small processing fee, the overall process is incredibly convenient.
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