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.

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

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 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, Oklahoma, Oregon, 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.

(See chart below for additional detail.)

Significant State Tax Reforms

States enacting changes to their income tax laws for retirement plans in 2016 include:

  • Minnesota: Military retirement pay (including pensions) is deductible.  (Change is effective beginning with 2016 tax year.)
  • New Jersey: The gross (personal) income tax exclusion on pension and retirement income is increased over a four-year period from $20,000 to $100,000 for married taxpayers filing jointly, from $15,000 to $75,000 for single and head-of-household filers, and from $10,000 to $50,000 for married taxpayers filing separately. (Change is effective beginning with 2017 tax year.)
  • Rhode Island: Taxpayers who have reached the Social Security retirement age are eligible for a $15,000 exemption on their retirement income.  This exemption applies to 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 that are otherwise qualified (these amounts will be adjusted annually for inflation). (Change is effective beginning with 2017 year.)
  • South Carolina: A new deduction for military retirement income is allowed.  For taxpayers under 65 years of age, the deduction is $5,900 for the 2016 ta year, but increases by $2,900 each year until it is fully phased-in at $17,5000 in 2020.  For taxpayers 65 years of age or older, the deduction is $18,000 for the 2016 tax year, but increases by $3,000 each year until it is fully phased-in at $30,000 in 2020. (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.

(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 percent), Illinois (3.75 percent), Indiana (3.23 percent), Michigan (4.25 percent) and Pennsylvania (3.07 percent) 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 a relatively high state sales tax rate of 7 percent include Indiana, Mississippi, Rhode Island, and Tennessee.  California has a state sales tax rate of 7.25 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 ($5,450,000 in 2016 and $5,490,000 in 2017), 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; and $4,187,500 for deaths on or after April 1, 2016 and before April 1, 2017).

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 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 New York ($2,062,500 for deaths on or after April 1, 2014, and on or before April 1, 2015, and $3,125,000 for deaths on or after April 1, 2015, and before April 1, 2016; and $4,187,500 for deaths on or after April 1, 2016 and on or before April 1, 2017).

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 o 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.

State Taxation of Retirement Income

The following chart shows generally which states’ tax retirement income, including Social Security and pension income for the 2016 tax year unless otherwise noted.  States shaded indicate they do not tax these forms of retirement income. (Click here)

Charts and Tables to Compare States

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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