State-by-State Guide to Taxes on Retirees

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NICKNAME
The Lone Star State

BOTTOM LINE: TAX-FRIENDLY
Texas is another of the no-income-tax states, so Social Security benefits and all forms of retirement income escape taxes in Texas. Sales taxes run high. The state offers a homestead exemption for all homeowners, as well as a homestead exemption for seniors.

STATE SALES TAX
6.25% (nonprepared food and prescription and nonprescription drugs are exempt). Local option taxes can raise the rate to 8.25%.

INCOME-TAX RANGE
No state income tax.

SOCIAL SECURITY
Social Security benefits are not taxed.

EXEMPTIONS FOR OTHER RETIREMENT INCOME
Retirement income is not taxed.

PROPERTY TAXES
Property tax is imposed by local taxing units, not by the state. Property taxes are paid to the local tax collector, which distributes funds to schools, cities and other local governments.

To qualify for the $15,000 homestead exemption, the home must be the principal residence of the filer on January 1 of the tax year. Also, local taxing units have the option to offer a separate exemption of up to 20% of the total value.

Tax breaks for seniors: If you are age 65 or older, or disabled, the January 1 ownership and residency are not required for the homestead exemption. For homeowners 65 and older, $10,000 (in addition to the regular $15,000 homestead exemption) of the property's assessed value is exempt from school taxes, and $3,000 may be exempt from other local taxes.

Once a homeowner 65 or older qualifies for an over-65 homestead exemption for school taxes, that owner benefits from a tax ceiling for that home on school taxes. If the homeowner improves the home (other than normal repairs or maintenance), the tax ceiling is adjusted for the new additions. School-district taxes are frozen for seniors (65 and older) at the level imposed on the residence the first year that the taxpayer qualified for the residence exemption. Counties, cities, towns and junior-college districts are permitted to establish a tax freeze on homesteads of the disabled and those 65 and older.

INHERITANCE AND ESTATE TAXES
There is no inheritance tax and no estate tax.

Visit RetirementLiving.com for a complete rundown of taxes in Texas.

States More Tax-Friendly for Retirees

• Our picks of the 10 most tax-friendly states for retirees
• The nine states with no income tax
• The five states with no sales tax
• The five states with the lowest sales taxes (including averages of county/city sales taxes)
• The 36 states that don't tax Social Security benefits

States Less Tax-Friendly for Retirees

• Our picks of the 10 least tax-friendly states for retirees
• The seven states with the highest income tax rate (based on highest tax bracket)
• The five states with the highest sales taxes (including average county/city sales taxes)
• The 22 states that impose their own estate taxes or inheritance taxes