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Tool | October 2015

State-by-State Guide to Taxes on Retirees

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The Bottom Line
Map of California

Least 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.

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 locations. (Food and prescription drugs are exempt.)

Income Tax Range

Low: 1% (on up to $15,498 of taxable income for married joint filers and up to $7,749 for those filing individually)

High: 13.3% (on more than $1,039,374 for married joint filers and $1 million 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.


Taxable at ordinary income tax rates. There is a 2.5% penalty on early distributions.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Taxable at ordinary income tax rates. There is a 2.5% penalty on early distributions.

Private Pensions

Taxable at ordinary income tax rates.

Public Pensions

Railroad retirement benefits exempt. All other public pensions are taxable at ordinary income tax rates.

Property Taxes

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 California's median home value of $373,100 is $3,015, according to the Tax Foundation.

Tax breaks for seniors: In 2014, the Governor reinstated the property tax postponement program, which provides property-tax relief to senior citizens, with revisions. Senior, blind and disabled citizens with an annual income of less than $35,000 and 40% equity in their homes can defer payment of property taxes, beginning September 2016. Each county may also 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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