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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.

Map of the United States

California Washington Oregon Nevada Arizona Utah Idaho Colorado Montana Wyoming North Dakota South Dakota Nebraska Kansas New Mexico Texas Oklahoma Minnesota Iowa Mississippi Louisiana Alabama Kentucky South Carolina Georgia Missouri Arkansas Tennessee Massachusetts District of Columbia North Carolina Wisconsin Connecticut Illinois Indiana Ohio West Virginia Virginia Virginia Maryland Delaware New Jersey Pennsylvania New York Rhode Island Maine Vermont Michigan Michigan New Hampshire Florida Alaska Alaska Hawaii Hawaii Hawaii Hawaii Hawaii Hawaii

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.

Two other states – New Hampshire and Tennessee – impose income taxes only on dividends and interest (5 percent for New Hampshire and 6 percent for Tennessee).

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 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 Illinois, Mississippi and Pennsylvania.

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

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

Significant State Tax Reforms

States enacting changes to their income tax laws for retirement plans in 2015 include:

  • Connecticut: All (100%) of military pay for a retired member of the U.S. Armed Forces or the National Guard is exempt.  Previously, the exemption was limited to 50% of military retirement pay.  Change is effective beginning with 2015 tax year.
  • Idaho: The retirement benefits deduction is expanded to include government workers covered under the Foreign Service Retirement and Disability System (FSRDS), as well as employees receiving benefits under the offset programs for the Civil Service Retirement System (CSRS) and FSRDS.  Legislation enacted in 2015 also clarifies that retirees under the Federal Employees Retirement System (FERS) and taxpayers receiving retirement benefits paid by the Foreign Service Pension System (FSPS) do not qualify for the deduction.  Change is effective beginning with 2015 tax year.
  • Maine: All (100%) retirement benefits received under a military retirement plan included in a taxpayer’s federal adjusted gross income will be excluded from Maine taxable income.  Change is effective beginning with 2016 year.
  • Ohio: The credits for retirement income and lump-sum distributions from a pension, retirement, or profit-sharing plan are limited to taxpayers whose individual or joint adjusted gross income is less than $100,000.  Previously, there were no income restrictions on these credits.  Change is effective beginning with 2015 tax year.
  • Oregon: With respect to the credit for donations to an “individual development account,” funds in accounts can now be used for retirement savings (along with many other things).  In addition, once a development account’s purpose has been met, remaining amounts can be rolled over into an individual retirement account.  Changes are effective beginning with 2016 tax year.
  • Rhode Island: Social Security benefits will be excluded for single taxpayers with federal adjusted gross incomes of up to $80,000 and for joint taxpayers with federal adjusted gross incomes of up to $100,000 (these amounts will be adjusted annually for inflation). Change is effective beginning with 2016 tax year.

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.

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.
  • 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 percent include Indiana, Mississippi, New Jersey, Rhode Island and Tennessee. California has a state sales tax rate of 7.5 percent. 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 ($5,430,000 in 2015), 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 on or before March 31, 2015, and $3,125,000 for deaths on or after April 1, 2015, and on or before March 31, 2016).

Other states, including Kansas, Oklahoma, and Arizona, 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.

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 percent.  Some states have a relatively low flat tax regardless of income, with the four lowest: Illinois (3.75 percent), Indiana (3.3 percent), Michigan (4.25 percent) and Pennsylvania (3.07 percent) for 2016.

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 percent include Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee.  California has a state sales tax rate of 7.5 percent.  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 ($5,430,000 in 2015 and $5,450,000 in 2016) others do not.  The latter category includes Illinois ($4 million), Massachusetts ($1million), and Nw York ($2,062,500 for deaths on or after April 1, 2015, and on or before March 31, 2015, and $3,125,000 for deaths on or after April 1, 2015, and on or before March 31, 2016; and $4,187,5000 for deaths on or after April 1, 2016 and on or before March 31, 2017).

Most states give residents over a certain age a break on their property taxes. With some taxes, you’ll need a relatively low income to qualify. Forty states provide either property tax credits or homestead exemptions that limit the value of assessed property subject to tax.

  • Comparison of State Death Taxes (Click here)
  • State Taxation of Retirement Income (Click here)
  • State Tax Treatment of Social Security and Pension Income (Click here
  • Contact Phone Numbers for State Revenue Offices
    (or the equivalent of a tax help office) (Click here) 

Sources:

  • Individual state tax and revenue departments
  • State Tax Handbook (2016); published by CCH Inc.
  • Federation of Tax Administrators
  • The Tax Foundation
  • National Conference of State Legislatures

Updated March 2016; based on available data.

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