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Tool | September 2014

State-by-State Guide to Taxes on Retirees

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California

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The Bottom Line
Map of California

NOT TAX-FRIENDLY

One of Kiplinger's top ten least tax-friendly states for retirees, the Golden State is a retiree's tax nightmare. Although Social Security benefits are exempt, all other forms of retirement income are fully taxed. California residents pay the highest income taxes in the U.S. The statewide sales tax is high, too. Real estate is assessed at 100% of market value.

State Sales Tax

The state sales tax increased to 7.5%, from 7.25%, as of January 2013. (The rate hike is temporary and is set to expire at the end of 2016.) Rates are higher in cities and counties with special taxing districts; with the addition of local taxes, the total can reach 10% in some cities. (Food and prescription drugs are exempt.)

Income Tax Range

Low: 1% (on up to $14,910 of taxable income for married joint filers and up to $7,455 for those filing individually)

High: 13.3% (on more than $1 million for married joint filers and for those filing individually)

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Railroad Retirement benefits are exempt. All private, local, state and federal pensions are fully taxed. There is a 2.5% state penalty on early distributions from retirement plans, annuities and IRAs.

Property Taxes

Property is assessed at 100% of market value. The maximum amount of tax on real estate is limited to 1% of assessed value. Note, though, that property is generally only reappraised when it changes ownership or has new construction (a property’s assessed value is typically equal to its purchase price adjusted upward each year by 2%). Under the homestead program, the first $7,000 of the full value of a homeowner's dwelling is exempt.

Median property tax on the state's median home value of $384,200 is $2,839, according to the Tax Foundation.

Tax breaks for seniors: The property tax postponement program, which provided property-tax relief to senior citizens, has been suspended. But as of 2012, each county is now allowed to implement a property tax postponement program of its own if it elects to do so.

Inheritance and
Estate Taxes

There is no inheritance tax or estate tax.

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