Please enable JavaScript to view the comments powered by Disqus.

Tax Planning

Guide to State Taxes on Retirees, 2009

All states need taxes to survive, but some are friendlier than others when it comes to retirees.

Although seven states have no state income tax, don’t assume that they are the cheapest places to retire.

A lot depends on your sources of income because many states that have an income tax exempt certain types of income such as government and military pensions, Social Security benefits or even distributions from private pensions or retirement savings up to a certain amount each year. In fact, income taxes may be the least of your worries in retirement. Properties taxes can be a bigger ongoing concern and sales taxes can nick you every time you open your wallet.

Property taxes on land and buildings are the biggest source of revenue for local governments. They are not imposed by states but by tens of thousands of cities, townships, counties, school districts and other jurisdictions. 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. There may be other tax breaks available, depending on where you live. All 50 states offer some type of property tax relief program such as freezes that will lock in the assessed value of your property once you reach a certain age, or deferral of taxes until the homeowner moves or dies (but the taxes ultimately have to be paid). In addition, counties and municipalities often have their own property tax relief plans such as “circuit breakers” that protect low-income homeowners from being overloaded by rising property taxes.

(Coming soon: Our interactive map will reveal how each state taxes income and property for retirees.)

Advertisement

States With No Income Tax
* Alaska
* Florida
* Nevada
* South Dakota
* Texas
* Washington
* Wyoming

Note: New Hampshire and Tennessee tax only interest and dividends.

States With the Highest Income Tax Rates (top tax bracket/income for single filers)
* Hawaii: 11%, >$200,000
* Oregon: 11%, >$250,000
* California: 10.55%, >$1,000,000
* New Jersey: 10.25%, >$500,000
* Rhode Island: 9.9%, >$372,950

States With No Sales Tax
* Alaska (although individual cities may impose a sales tax)
* Delaware
* Montana
* New Hampshire
* Oregon

Advertisement

Most states exempt prescription drugs from sales taxes. Some also exempt food and clothing purchases, and a few also exempt non-prescription drugs.

States With the Highest Sales Tax (including averages for county and city rates)
* Tennessee, 9.4%
* California, 9.1%
* Louisiana, 8.75%
* Washington, 8.75%
* Illinois, 8.4%

Chicago has the highest sales tax rate of any major U.S. city with a combined state and local rate of 10.25%.

States With the Lowest Sales Tax (including averages for county and city)
* Hawaii, 4.4%
* Virginia, 5%
* Wisconsin, 5.4%
* Wyoming, 5.4%
* South Dakota, 5.5%