Slide Show | September 2014

See All Slide Shows   Page 1 of 13  

10 Least Tax-Friendly States for Retirees

slideshow image

These 10 states impose the highest taxes on retirees, according to Kiplinger’s 2014 analysis of state taxes. Five of them treat Social Security benefits just like Uncle Sam—taxing up to 85%. Exemptions for other types of retirement income are limited or nonexistent. (To see how retirement income is taxed by state, go to the Retiree Tax Map.)

This year, we also looked at states’ capital gains rates because the six-year-long bull market has left many retirees with larger taxable portfolios. While investors typically pay lower federal tax rates on long-term capital gains, most states treat capital gains like ordinary income, notes Kyle Pomerleau, an economist for the Tax Foundation. That can take an unexpected bite out of the investment income of retirees who live in states with high income tax rates. For example, the top combined federal and state capital gains tax rate in California is 33%, according to the Tax Foundation, almost 10 percentage points higher than the fed’s top 23.8% tax rate on such profits.

Most retirees keep a close watch on their expenses, and they tend to vote in large numbers. That may explain why lawmakers in several states have attempted to make their environs more welcoming for older residents. In the past year, Maine increased the amount of pension income that’s excluded from state taxes. Nebraska boosted its exemption for Social Security income, starting in 2015. And New York and Maryland moved to gradually increase their estate tax exemptions to match the federal exclusion (currently $5.34 million).

SOURCES: State tax departments, CCH and the Tax Foundation.

10 Least Tax-Friendly States for Retirees
Advertisement

Popular Slideshows

Advertisement

print / view as single page order a reprint
Advertisement
Advertisement
Get valuable updates from Kiplinger directly to your e-mail

Featured Videos From Kiplinger