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The Grand Canyon State
BOTTOM LINE: TAX-FRIENDLY
Arizona is a major retirement destination, with plenty of sunshine and a low personal income tax rate that tops out at 4.54%. Social Security benefits are exempt, as well as up to $2,500 of some retirement income. Although Arizona’s statewide sales tax averages about 6.6%, when combined with local rates it can top 11%. There is no inheritance tax, gift tax or estate tax.
STATE SALES TAX
Arizona's state sales tax rose from 5.6% to 6.6%, as of June 1, 2010. The temporary increase will last three years. Currently, all 15 counties levy a tax. County rates range from 0.5% to 1.125%. Arizona does not levy a state tax on food for home consumption or on drugs prescribed by a licensed physician or dentist. However, some cities in Arizona do levy a tax on food for home consumption. City rates range from 1% to 4.25%.
Low: 2.59% (up to $20,000 of taxable income for married joint filers, $10,000 for all others)
High: 4.54% (on more than $300,000 of taxable income for married joint filers, more than $150,000 for all others)
Benefits are not taxed.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Railroad Retirement benefits are exempt. Up to $2,500 total of military, civil-service, and Arizona state and local government pensions are also exempt. Out-of-state government pensions are fully taxed.
There is no state property tax. Tax jurisdictions set tax rates, which vary considerably from one area to another.
Tax breaks for seniors: Single homeowners 65 and older who earn $3,750 or less and married couples who earn $5,500 or less are eligible for a tax credit of up to $502. Homeowners who are at least 65 years old, have resided in their primary residence for at least two years and fall below certain income limits (for 2012, one owner of a property must have actual income below $33,504, and multiple owners of a property must have income below $41,880) can apply to the assessor by September 1 to have the valuation of their property frozen for three years. The freeze can be renewed every third year.
INHERITANCE AND ESTATE TAXES
There is no inheritance or gift tax, and no estate tax.
Visit RetirementLiving.com for a complete rundown of taxes in Arizona.