In August, Kiplinger released an interactive map detailing the tax environment for retirees in each state. Users can compare up to five different states to get a picture of how their home states compares to others. Almost half the states were rated as tax-friendly or higher, with many of the most tax-friendly states concentrated in the South.
ThinkAdvisor looked for the five best and worst states for retirees to pay taxes in based on tax breaks offered to retirees; special considerations for retirement income; whether Social Security benefits were taxed and, of course, sales and income tax levels. We rated states that offered more benefits to retirees were better even if they had higher sales and income levels (and of course, states that offered fewer benefits came out worse).
(Check out Top 10 Offbeat, Cheap Cities for Retirement on ThinkAdvisor.)
Kiplinger published in October another interactive map that shows the tax environment in each state as it applies to residents as a whole instead of retirees.
5. Mississippi
Sales Tax: 7% with exemptions for prescriptions, residential utilities, motor fuel, newspapers, health care services and payments made by Medicare and Medicaid.
Income Tax: 3% for earners with less than $5,000 of taxable income; 5% for earners with more than $10,000 of taxable income.
Social Security Tax: None
Property Tax Breaks for Seniors: Disabled homeowners and those 65 and older have an exemption for the first $75,000 of property value.
Tax on Inheritances and Estates: None
Special Treatment for Other Retirement Income: Qualified retirement income is exempt from state income tax.
4. Georgia
Sales Tax: 4% with exemptions for food and prescriptions. Individual counties can add up to 4% more in sales tax.
Income Tax: 1% on the first $750 of taxable income for individuals; $500 for couples filing separately; $1,000 for couples filing jointly. The upper rate is 6% on individual earners with over $7,000; $5,000 for couples filing separately; $10,000 for couples filing jointly.
Social Security Tax: None
Property Tax Breaks for Seniors: Homeowners 62 and older are exempt from school taxes on $10,000 of their property's assessed value if they earn less than $10,000. Those with less than $30,000 may be exempt from state and local property taxes.
Tax on Inheritances and Estates: None
Special Treatment for Other Retirement Income: Disabled taxpayers or those older than 62 are eligible for an adjustment on retirement income on their state tax return.
3. Delaware
Sales Tax: None
Income Tax: 2.2% for earners with less than $5,000 in taxable income; 6.75% for earners with over $60,000. The rate for high earners will fall to 6.6% in January.
Social Security Tax: None
Property Tax Breaks for Seniors: Homeowners older than 65 are eligible for a credit of half of school property taxes up to $500 if they were residents prior to Dec. 31, 2012. Those who moved to the state after that date have to be residents for three years to be eligible for the credit.
Tax on Inheritances and Estates: No inheritance tax. The maximum estate-tax rate is 16%, with a %5.25 million exemption for 2013.
Special Treatment for Other Retirement Income: Taxpayers older than 60 can exclude $12,500 of investment and qualified pension income, even on out-of-state government pensions. The exclusion for those under 60 is $2,000.
2. Wyoming
Sales Tax: 4% with exemptions for food and prescriptions. Individual counties can add up to 3% more in sales tax.
Income Tax: None
Social Security Tax: None
Property Tax Breaks for Seniors: Residents 65 and older who meet income requirements are eligible for a tax rebate of up to $700 for individuals and $800 for couples.
Tax on Inheritances and Estates: None
Special Treatment for Other Retirement Income: Retirement income is not taxed.
1. Alaska
Sales Tax: There’s no state tax, but some municipalities charge a local sales tax.
Income Tax: None
Social Security Tax: None
Property Tax Breaks for Seniors: Homeowners over 65 and surviving spouses over 60 don’t have to pay municipal taxes on the first $150,000 of value on their property.
Tax on Inheritances and Estates: None
Special Treatment for Other Retirement Income: Retirement income is not taxed.
5. California
Sales Tax: A temporary tax hike set to expire in 2016 raised the rate from 7.25% to 7.5%. Some counties may have higher rates. Food and prescription drugs are exempt.
Income Tax: The lowest rate is 1% for single filers with up to $7,455; $14,910 for married joint filers. The highest rate is 13.3% for those with more than $1 million.
Social Security Tax: None
Property Tax Breaks for Seniors: None
Tax on Inheritances and Estates: None
Special Treatment for Other Retirement Income: Railroad retirement and Social Security benefits are exempt, but all other retirement income is taxable.
4. Nebraska
Sales Tax: 5.5% with exemptions for food and prescription drugs.
Income Tax: 2.46% for single earners with less than $2,400 of taxable income; $4,800 for married couples filing jointly. The upper rate is 6.84% for single filers with taxable income over $27,000 and $54,000 for married couples filing jointly.
Social Security Tax: Social Security benefits are taxed at the same rate as federal taxes.
Property Tax Breaks for Seniors: Homeowners 65 and older who meet income restrictions are eligible for exemptions if they occupy the house from January 1 through August 15. Single filers earning less than $25,801 and married filers earning less than $30,301 may be eligible for as much as $40,000 or 100% of their county's average value of single-family residential properties.
Tax on Inheritances and Estates: No estate tax, and assets inherited by a spouse or charity are not taxed. Other inheritance taxes are levied by counties and are between 1% and 18%.
Special Treatment for Other Retirement Income: None
3. Rhode Island
Sales Tax: 7% with exemptions for groceries, most clothing and footwear, precious-metal bullion under some circumstances and prescription drugs.
Income Tax: 3.75% for earners with up to $58,600 of taxable income; 5.99% for earners with taxable income over $133,250.
Social Security Tax: Social Security is taxed at the federal level. Single earners with provisional income of $25,000 or more, $32,000 for married earners filing jointly, are subject to tax on Social Security benefits.
Property Tax Breaks for Seniors: Homeowners 65 and older who earn less than $30,000 are eligible for a $300 tax credit on property taxes.
Tax on Inheritances and Estates: No inheritance tax, but the maximum estate tax rate is 16%. The exemption for 2013 is $910,725, and is adjusted for inflation every year.
Special Treatment for Other Retirement Income: Railroad retirement benefits are exempt, but most other income is taxable.
2. Minnesota
Sales Tax: 6.87% with exemptions for food, clothing, and prescription and nonprescription drugs.
Income Tax: 5.35% for single filers with less than $24,270 of taxable income; $35,480 for joint filers. The upper rate is 9.85% for single filers with more than $150,000 of taxable income; $250,000 for joint filers.
Social Security Tax: Taxed at federal level.
Property Tax Breaks for Seniors: People 65 or older with less than $60,000 in household income can defer part of their property taxes to the state. Interest will be charged and a lien will be attached to the property.
Tax on Inheritances and Estates: No inheritance tax, but estate taxes have an exclusion of $1 million. The maximum estate tax rate is 16%.
Special Treatment for Other Retirement Income: Railroad retirement benefits are not taxed, but other retirement income is.
1. Vermont
Sales Tax: 6% with exemptions for food, clothing, prescription and nonprescription drugs. Local jurisdictions may add 1%.
Income Tax: 3.55% for individual earners with up to $36,250 of taxable income; $59,050 for married couples. The upper rate is 8.95% for single and joint filers with taxable income over $398,350.
Social Security Tax: Taxed at the federal level.
Property Tax Breaks for Seniors: None, although veterans or their surviving spouses and children can claim an exemption of the first $10,000 of appraisal value of their residence.
Tax on Inheritances and Estates: No inheritance tax, but estate tax applies to properties worth more than $2.75 million. The maximum estate tax rate is 16%.
Special Treatment for Other Retirement Income: Railroad retirement benefits are exempt; all other retirement income is taxed.
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