Tool | September 2014
State-by-State Guide to Taxes on Retirees
State Sales Tax
4% (food and prescription drugs are exempt). But local taxes may add another 4%.
Income Tax Range
Low: 1% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately)
High: 6% (on taxable income over $10,000 for married couples filing jointly; on taxable income over $7,000 for individual filers; and on taxable income over $5,000 for married couples filing separately)
Benefits are not taxed.
Exemptions for Other Retirement Income
Taxpayers who are 62 or older are eligible for a retirement-income exclusion. Retirement income includes pensions and annuities, interest, dividends, net income from rental property, capital gains, royalties, pensions, annuities, and the first $4,000 of earned income, such as wages. For married couples filing joint returns with both members receiving retirement income, the maximum adjustment may be up to twice the individual exclusion amount. Retirement income exceeding the maximum adjustable amount is taxed at the normal rate. The retirement-income exclusion is $35,000 for residents ages 62 to 64. For residents 65 or older, the exclusion is $65,000. Railroad Retirement income is exempt.
A homeowner may pay a combination of county, city, school and state taxes, depending on location. Property is assessed at 40% of the fair market value. The average county and municipal millage rate is 30 mills, or $30 per $1,000 of assessed value. For 2014, state taxes on real estate are 0.10 mills, or 10 cents on each $1,000 of assessed value. The rate drops to 0.05 mills for 2015. The state property tax will be phased out by 2016.
A standard homestead exemption is available to all homeowners who occupy their home as a primary residence. The owner may be granted a $2,000 exemption from state, county and some school taxes. The $2,000 is deducted from the 40% assessed value of the homestead.
Median property tax on the state's median home value of $162,800 is $1,346, according to the Tax Foundation.
Tax breaks for seniors: For homeowners 62 and older who earn $10,000 or less, up to $10,000 of their property's assessed value is exempt from school taxes. People 62 or older whose family income does not exceed $30,000 may qualify for an exemption from state and county property taxes equal to the amount by which the assessed value of the home exceeds the assessed value for the preceding tax year. Individuals age 65 and older can claim an exemption from all state property taxes on their home and up to ten acres of land surrounding the home. For those 65 and older who earn $10,000 or less, $4,000 of their property's value is exempt from state and county taxes as well. Many counties offer homestead exemptions that are more beneficial to the taxpayer than the exemptions offered by the state. The homestead exemption is deducted from the assessed value (40% of the fair market value) of the home.
There is no inheritance tax or estate tax.
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