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Tool | August 2013

State-by-State Guide to Taxes on Retirees

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The Bottom Line
Map of Maine


The Pine Tree State, like the majority of states, exempts Social Security benefits from state income taxes. Up to $6,000 per person of eligible pension income can be deducted. Although the top state income tax rate fell from 8.5% to 7.95% starting in 2013, it is still steep. Maine is one of a few states that do not allow cities and towns to impose their own local sales tax. Maine residents pay a 5.5% sales tax statewide on everything except food and prescription drugs.

State Sales Tax

A flat 5.5% statewide (food and prescription drugs are exempt); 8% for prepared food.

Income Tax Range

Low: 6.5% (on taxable income between $5,200 and $20,900 for single filers; between $10,450 and $41,850 for joint filers)

High: 7.95% (on taxable income of $20,900 or more for single filers; $41,850 or more for joint filers)

Social Security

Social Security benefits are not taxed.

Exemptions for Other Retirement Income

Individuals may deduct up to $6,000 of eligible pension income that is included in federal adjusted gross income. Except for military pension benefits, the $6,000 deduction must be reduced by any Social Security and Railroad Retirement benefits received, whether taxable or not. Beginning in 2014, a new law will raise the income tax subtraction modification from $6,000 to $10,000. The subtraction modification is expanded to include all federally taxable pension income, annuity income and individual retirement account distributions, except pick-up contributions for which a deduction has been allowed.

Property Taxes

Real estate is subject to local and, if authorized by the legislature, state property taxes. Local property taxes, based on assessed valuation, are assessed, levied and collected by municipalities.

The Homestead Exemption program provides property-tax relief for individuals who have owned homestead property in Maine for at least 12 months and make the property they occupy on April 1 their permanent residence. Property owners receive an exemption of $10,000 on the assessed value of their home.

Residents with income below $64,950 (single) or $86,600 (living with a spouse or dependent) may qualify for a $1,600 property tax refund if the property tax exceeds 4% of household income or total rent payments exceed 20% of household income.

Median property tax on the state's median home value of $177,500 is $1,936, according to the Tax Foundation.

Tax breaks for seniors: A veterans' exemption of $6,000 is available to those who served during a recognized war period, are 62 or older, are receiving 100% disability as a veteran or became 100% disabled while serving. Paraplegic veterans who received a federal grant for a specially adapted housing unit may receive a $50,000 exemption. An exemption of $4,000 is available to those who are legally blind.

Seniors with household income below $14,700 (single) or $18,200 (living with a spouse or dependent) qualify for the $1,600 property tax refund.

A senior citizen property tax credit for volunteer service is available. A municipality may adopt an ordinance to allow resident homeowners who are at least 60 years old to earn up to $750 in benefits by volunteering to provide services to the municipality. The benefits are not subject to Maine income tax.

Inheritance and
Estate Taxes

Maine has no inheritance tax. In 2013, the estate tax exemption level rose to $2 million, and estate tax rates range from 8% to 12%.

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