Tool | October 2016

State-by-State Guide to Taxes on Retirees

Our comprehensive guide to taxes on retirement income, property and purchases, as well as special tax breaks for seniors, in every state.


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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

7.5% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.48%, according to the Tax Foundation. The state sales tax rate is scheduled to decrease to 7.25% on January 1, 2017.

Income Tax Range

Low: 1% (on up to $15,700 of taxable income for married joint filers and up to $7,850 for those filing individually)

High: 13.3% (on more than $1,052,886 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 $412,700 is $3,160, 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.