Does Escrow Pay Supplemental Tax Bill? What New Homeowners Need to Know

Purchasing a new home is an exciting milestone in life As a new homeowner, you’ll receive your first property tax bill and might wonder – does my escrow account pay the supplemental tax bill too?

The short answer is – it depends. Let’s break it down.

When you purchase a home, the county assessor reassesses the property value based on the new purchase price. This often increases the assessed value, resulting in higher property taxes.

The county then recalculates your property taxes based on the new assessed value. The difference between your property taxes and the seller’s lower property taxes is the supplemental tax.

Here are some key things to understand about supplemental tax bills

What is a Supplemental Tax Bill?

A supplemental tax bill covers the difference between the prior assessed value and the new increased assessed value upon purchase. It brings the taxes up to date based on the new purchase price.

You’ll receive this “catch up” supplemental tax bill 6-12 months after purchase It’s prorated from the purchase date through the end of the tax year on June 30

For example, if you purchase in January, you’ll get a supplemental bill for 50% of the increase in taxes. If you purchase in June, it will be a much smaller percentage.

Are Supplemental Taxes Paid from Escrow?

Your lender collects money each month in your escrow account to pay your property taxes and home insurance.

However, some lenders do NOT pay supplemental tax bills from the escrow account. Instead, they forward the bill to you to pay separately.

Other lenders WILL pay the supplemental tax bill from the escrow account if funds are available. They may adjust your monthly escrow payment to cover the higher taxes.

So whether escrow pays supplemental taxes depends on your lender’s policies. Check with them to confirm how they handle it.

How Much Are Supplemental Property Taxes?

The supplemental tax amount depends on:

Your home purchase price
The prior assessed value
When you purchased the home
Your property tax rate

For example:

Prior assessed value: $300,000
New purchase price: $500,000
Purchase date: March 15
Annual property tax rate: 1.25%

The supplemental tax would be approximately:

New assessed value: $500,000
Prior assessed value: $300,000
Increase in assessed value: $200,000
Annual taxes on $200,000 at 1.25%: $2,500
Prorated for 75% of year (March 15 – June 30): $1,875

So the supplemental tax would be around $1,875 in this example.

When Are Supplemental Tax Bills Due?

Supplemental tax bills are due on different dates than your annual property tax bill.

There are typically two installments with due dates several months apart. The delinquent dates are also different than the annual taxes.

If you miss the supplemental tax payment deadlines, steep penalties apply. It’s crucial to pay on time to avoid added penalties and fees.

Can I Pay Supplemental Taxes from Escrow?

If your lender does NOT pay the supplemental tax bills, you’ll need to budget for it. The best way is to increase your monthly escrow contribution.

For example, you could divide the supplemental tax by 12 months and add that to your payment. This gradually builds up funds to pay it when due.

Some lenders may do an escrow analysis and adjust your payment automatically. But it’s wise to save on your own if not.

Strategies to Handle Supplemental Tax Bills

Here are some tips to prepare for supplemental taxes:

Anticipate them – Know they’re coming to avoid surprises.
Review your loan estimate – It may mention supplemental taxes.
Ask your lender – Confirm how they handle payment.
Set aside funds – Open a savings account and set up automatic monthly transfers.
Pay attention to due dates – Avoid penalties by paying on time.
Claim tax deductions – Supplemental taxes are deductible on your tax return.

What Happens After the First Year?

After the first year, the assessor’s records are updated with the new purchase price.

You’ll then receive a single consolidated property tax bill instead of the supplemental bill. This makes tax time easier in future years!

Alternatives to Large Supplemental Tax Bills

If your new purchase price is much higher than the prior value, the supplemental taxes could be shocking.

In some cases, you may qualify to transfer the old assessed value from your prior home to the new home. This helps limit large tax increases.

In California, this is known as a Proposition 60/90/110 transfer. Check if your state offers a similar assessed value transfer option.

Let’s Review

While supplemental tax bills can be confusing, just remember:

They cover the difference between old and new tax values
Some lenders pay them, others don’t
Budget for them in your first year
Pay attention to due dates to avoid penalties

Check with your lender and make a plan to handle this extra tax bill. With a strategy in place, you’ll stay on top of your taxes as a new homeowner.

Frequency of Entities

Supplemental tax bill: 15
Escrow account: 7
New homeowner: 5
Assessed value: 4
Property taxes: 4
Tax year: 2
Delinquent dates: 2
Lender: 8
Purchase price: 3
Prior assessed value: 3
Tax penalties: 2
Tax deductions: 1
Proposition 60/90/110: 1

Does Escrow Pay Supplemental Tax Bill

Supplemental Taxes?! I thought my property taxes were paid through escrow!?!

FAQ

Who pays the supplemental tax bill in California?

You are only responsible for Supplemental property taxes that cover the months during which you owned the property. The previous owner should have received a separate Supplemental tax bill to pay. If the tax bill covers a period during which the property was not owned by you, then it is not your responsibility to pay.

Why did I get a property tax bill if I have escrow in California?

Typically, secured property taxes are prorated between the buyer and the seller during escrow. As a new property owner, you are responsible for any property taxes that were not paid as of the time escrow closed. It is your responsibility to obtain the Annual Secured Property Tax Bill.

Should I pay taxes through escrow?

When your insurance or property tax bill comes due, the lender uses the escrow funds to pay them. That way, you don’t have to keep up with the payment deadlines and you’re not forced to shell out hundreds or thousands of dollars all at once to cover your taxes or keep your insurance current.

Why did I get a supplemental property tax bill in Riverside County?

Under state law, property is reappraised upon completion of new construction or change of ownership. A supplemental tax bill is an additional property tax bill based on the difference between the prior assessed value and the new assessed value of real property.

What happens to supplemental tax bills during escrow?

Any supplemental tax bills issued during escrow before or during escrow are paid by the seller. Buyers will see a debit on their statement reflecting the prorated amount they owe for the remainder of the tax year. What to expect after close?

Do escrow accounts cover taxes?

Escrow accounts don’t cover all the expenses related to homeownership. Your lender or servicer won’t collect money to pay your utility bills or homeowners association (HOA) fees, for instance. Supplemental tax bills also aren’t covered by escrow accounts. These are one-time tax bills that are issued due to a change in ownership or new construction.

Why am I getting a tax bill from my escrow account?

The bill may be issued before your escrow account has enough funds to pay your taxes. It may be due to any local tax rate changes or property reassessments. Your escrow account may not have enough funds to cover the full tax amount. There could be delays if your mortgage was transferred to a different servicer.

Does escrow pay property tax?

You’ve opted for the escrow pays property tax option and continued to use it until your mortgage is paid off. When that happens, you’ll receive a “satisfaction of mortgage” letter from the lender. You will thus become the sole property owner. This also means that you’ll have to handle your tax and insurance premium payments on your own.