Taxes by State

If you plan to move to another state when you retire, examine the tax burden you’ll face when you arrive. State taxes are increasingly important to everyone, but retirees have extra cause for concern since their income may be fixed.

Select your state from the map below to see the related tax information.

You may also search for tax information by choosing one of these three sections:
Alabama-Iowa, Kansas-New Mexico, New York-Wyoming

Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination. This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesn’t necessarily ensure a low total tax burden.

States raise revenue in many ways including sales taxes, excise taxes, license taxes, income taxes, intangible taxes, property taxes, estate taxes and inheritance taxes. Depending on where you live, you may end up paying all of them or just a few.

This section of our Web site provides you with information on state income taxes, sales and fuel taxes, taxes on retirement income, property taxes and inheritance and estate taxes, as well as sales and fuel taxes. It is intended to give you some insight into which states may offer a lower cost of living. To check out the state where you want to retire, just select from the state menu above.

Introduction to Taxes by State

Over the past few years, property prices have plummeted in many areas, but the same can’t be said for taxes, and now both real estate and taxes may be on the rise, according to CCH, a Wolters Kluwer business and global provider of tax, accounting and audit information. There are a lot of factors to consider in deciding where to retire and what’s going to be affordable.  The different types of taxes you may need to pay are among the costs to look at.

Taxes that seniors should consider when evaluating the financial implications of where they may want to call home in retirement include:

*  State taxes on retirement benefits;
*  State income tax rates;
*  State and local sales tax;
*  State and local property taxes; and
*  State estate taxes.

Taxability of Retirement Benefits Varies From State to State

Currently, seven states do not tax individual income – retirement or otherwise: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

Tennessee is reducing its Hall Tax on interest and dividend income. The 6% Hall Tax rate is being reduced in 1% increments annually until the tax is completely eliminated after the 2020 tax year. It is at 3% as of 2018.

In New Hampshire, residents must file a tax return when they have interest and dividend income in excess of $2,400. That increases to $4,800 for those who are married and filing jointly. An additional $1,200 exemption may be available for taxpayers who are age 65 or older, disabled, or blind.

In the other 41 states and the District of Columbia, tax treatment of retirement benefits varies widely. For example, some states exempt all pension income or all pension income or all Social Security income. Other states provide only partial exemption or credits and some tax all retirement income.

States exempting pension income entirely for qualified individuals are Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming.

States that exempt or provide a credit for a portion of pension income include: Alabama, Arkansas, Colorado, Delaware, Georgia, Hawaii, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Missouri, Montana, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, South Carolina, Utah, Virginia and Wisconsin.

States, where pension income is taxed, include Arizona, California, Connecticut, District of Columbia, Idaho, Indiana, Kansas, Massachusetts, Minnesota, Nebraska, North Carolina, North Dakota, Rhode Island, Vermont and West Virginia.

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Significant State Tax Reforms

The Tax Cuts and Jobs Act (TCJA) was approved in December 2017 and will have major ramifications on taxpayers in 2018 and beyond. Notable TCJA tax reforms for retirees include:

  • Standard deduction: Individuals who are married and filing jointly will have an increased standard deduction of $24,000, up from the $13,000. Single taxpayers and those who are married and file separately have a $12,000 standard deduction, up from the $6,500. For heads of households, the deduction will be $18,000, up from $9,550.
  • Personal exemption: The personal exemption has been eliminated.
  • Tax brackets: Tax brackets have changed, and the top rate for taxes is 37%; this rate applies to married taxpayers who file jointly at $600,000 and up.
  • Estate tax: The estate exemption doubles to $11.2 million per individual and $22.4 million per couple.
  • Retirement savings contributions: Those who participate in certain retirement plans ‒ 401(k), 403(b) and most 457 plans, and the Thrift Savings Plan – can contribute as much as $18,500 this year, a $500 increase.
  • IRA savings: For single taxpayers, the IRA savings limit is $63,000 to $73,000. For married couples, if the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don’t have a retirement plan but are married to someone who does, the IRA savings limit is $189,000 to $199,000.

While some states tax pension benefits, only 13 states impose tax on Social Security income: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. These states either tax Social Security income to the same extent that the federal government does or provide limited breaks for Social Security income, often for lower-income individuals.

(See chart below for full detail on State Taxation of Retirement Income.)

State Income, Property, Sales Taxes Can Add Up

In addition to state taxes on retirement benefits, other taxes to consider when evaluating financial factors on where to retire include:

  • State income tax rates: For example, income tax rates also can have a significant financial impact on retirees in determining where they want to live and can vary widely across the country. While seven states have no income tax and two tax only interest and dividend income, several have a relatively low-income tax rate across all income levels. For example, the highest marginal income tax rates in Arizona, Kansas, New Mexico, North Dakota and Ohio are below 5 percent. Some states have a relatively low flat tax regardless of income, with the five lowest: Colorado (4.63%), Illinois (4.95%), Indiana (3.23%), Michigan (4.25%) and Pennsylvania (3.07%) for 2017.
  • State and local sales taxes: Forty-five states and the District of Columbia impose a state sales and use tax (only Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose a state sales and use tax, although some Alaska localities do). States with the highest average combined state and local sales tax rates are Louisiana (9.98%), Tennessee (9.46%), Arkansas (9.30%), Alabama (9.01%), and Washington (8.92%). Local sales and use taxes, imposed by cities, counties and other special taxing jurisdictions, such as fire protection and library districts, also can add significantly to the rate.
  • State and local property taxes: While property values have declined over recent years in many areas, it has not necessarily been the case for property taxes. However, many states and some local jurisdictions offer senior citizen homeowners some form of property tax exemption, credit, abatement, tax deferral, refund or other benefits. These tax breaks also are available to renters in some jurisdictions. The benefits typically have qualifying restrictions that include age and income of the beneficiary.
  • State estate taxes: Estate taxes also can influence where seniors want to retire. Rules vary from state to state, as well as from federal estate tax laws. While some states, such as Delaware and Hawaii, follow the federal exclusion amount ($11,180,000 for 2018), others do not. The latter category includes Illinois ($4 million), Massachusetts ($1 million), and New York ($2,062,500 for deaths on or after April 1, 2014, and before April 1, 2015, and $3,125,000 for deaths on or after April 1, 2015, and on or before April 1, 2016; $4,187,500 for deaths on or after April 1, 2016 and before April 1, 2017; and $5,250,000 for deaths on or after April 1, 2017 and before Dec. 31, 2018).

Other states, including Arizona, Kansas, and Oklahoma no longer impose an estate tax. Still others, like California and Florida, technically still have such a tax on their books, but collect no revenue because their tax is based on the now-repealed federal credit for state death taxes. In general, this is an area of the law that has been in a considerable state of flux in recent years and will probably continue to be so in the foreseeable future.   (For more information on estate tax issues, click here)

Impact of State Income, Property, and Sales Taxes

In addition to state taxes on retirement benefits, other taxes that seniors should consider when evaluating the financial implications of where they may want to retire include:

State income tax rates. For example, income tax rates also can have a significant financial impact on retirees in determining where they want to live and can vary widely across the country. While seven states have no income tax and two tax only interest and dividend income, several have a relatively low income tax rate across all income levels. For example, the highest marginal income tax rates in Arizona, Kansas, New Mexico, North Dakota, and Ohio are below 5%. Some states have a relatively low flat tax regardless of income, with the four lowest: Illinois (3.75%), Indiana (3.3%), Michigan (4.25%), and Pennsylvania (3.07%) for 2018.

State and local sales taxes. Forty-five states and the District of Columbia impose a state sales and use tax (only Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose a state sales and use tax). States with a state sales tax rate of 7% include Indiana, Mississippi, Rhode Island, and Tennessee. California has a state sales tax rate of 7.25%. Local sales and use taxes, imposed by cities, counties and other special taxing jurisdictions, such as fire protection and library districts, also can add significantly to the rate.

State and local property taxes. While property values have declined over recent years in many areas, it has not necessarily been the case for property taxes. However, many states and some local jurisdictions offer senior citizens homeowners some form of property tax exemption, credit, abatement, tax deferral, refund or other benefits. These tax breaks also are available to renters in some jurisdictions. The benefits typically have qualifying restrictions that include age and income of the beneficiary.

State estate taxes. Estate taxes also can influence where seniors want to retire. Rules vary from state to state, as well as from federal estate tax laws. While some states, such as Delaware and Hawaii, follow the federal exclusion amount ($11,180,000 for 2018) others do not. The latter category includes Illinois ($4 million), Massachusetts ($1 million), and New York ($2,062,500 for deaths on or after April 1, 2014, and before April 1, 2015, and $3,125,000 for deaths on or after April 1, 2015, and on or before April 1, 2016; $4,187,500 for deaths on or after April 1, 2016 and before April 1, 2017; and $5,250,000 for deaths on or after April 1, 2017 and before Dec. 31, 2018).

Other states, including Arizona, Kansas and Oklahoma, no longer impose an estate tax. Still others, like California and Florida, technically still have such a tax on their books, but collect revenue because their tax is based on the now-repealed federal credit for state death taxes. In general, this is an area of the law that has been in a considerable state of flux in recent years and will probably continue to be so in the foreseeable future.

Charts and Tables to Compare States

Sources:

  • Individual state tax and revenue departments
  • State Tax Handbook (2017); published by CCH Inc.
  • Federation of Tax Administrators
  • The Tax Foundation
  • National Conference of State Legislatures

Updated June 2018; based on available data.

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