State-by-State Guide to Taxes on Retirees

Printer-friendly version

NICKNAME
The First State

BOTTOM LINE: TAX-FRIENDLY
Delaware is one of the tax-friendliest states for retirees. It has no sales tax. Its income tax rates are modest. Social Security benefits are exempt, and senior taxpayers can exclude $12,500 of investment and qualified pension income from state income taxes. Homeowners 65 and older can get a credit equal to half of the school property taxes, up to $500.

STATE SALES TAX
Delaware does not impose a state or local sales tax.

INCOME-TAX RANGE
Low: 2.2% (on taxable income from $2,001 to $5,000)
High: 6.75% (for taxable income above $60,000)

SOCIAL SECURITY
Benefits are not taxed.

EXEMPTIONS FOR OTHER RETIREMENT INCOME
Railroad Retirement benefits are exempt. Taxpayers 60 and older can exclude $12,500 of investment and qualified pension income. Out-of-state government pensions qualify for the pension and retirement exemption. For those under age 60, $2,000 of investment and qualified pension income is exempt. If you are 65 or older on December 31, you are eligible for an additional standard deduction of $2,500 (if you do not itemize).

PROPERTY TAXES
Real estate is subject to county, school district, vocational school district and municipal property taxes. Property is valued at different percentages according to locality.

Tax breaks for seniors: Homeowners 65 and older can get a credit equal to half of the school property taxes, up to $500. If both people in a married household are 65 or older, only one school tax credit will be given to the household per year. If only one member is 65 or older, that person may still apply for the full tax credit. Additional exemptions for senior citizens are available, but they vary by county.

INHERITANCE AND ESTATE TAXES
In July 2009, the legislature reinstated Delaware's estate tax, tying it to the federal estate tax. The estate-tax exemption is $5.12 million for 2012. The maximum estate-tax rate is 16%. There is no inheritance tax.

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

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