State-by-State Guide to Taxes on Retirees
Tool | November 2019

State-by-State Guide to Taxes on Retirees


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The Bottom Line
Flag of Delaware

Most Tax-Friendly

No sales tax, low property taxes, and no death taxes make Delaware a tax haven for retirees. It’s easier to spoil the grandkids when you pay zero state or local sales tax on your in-state purchases (the First State is one of only a handful of states with no sales tax).

You’ll also have more disposable income to spend on the grandkids, since property taxes are so low. The average annual property tax bill in Delaware on a $400,000 home is just $2,414, which is the sixth-lowest amount in the nation. Plus, some Delaware seniors qualify for a school property tax credit of up to $400 (you might have to live in the state for 10 years to get it, though).

The only downside—and it really isn’t that bad—are middle-of-the-road income taxes. The rates are comparatively reasonable, and residents age 60 and older can exclude up to $12,500 of pension and other retirement income (including dividends and interest, capital gains, IRA and 401(k) distributions, etc.).

State Sales Tax

Neither the state nor localities impose a sales tax. In response, New Jersey has halved the sales tax on many items in Salem County, which borders Delaware.

Income Tax Range

Low: 2.2% (on taxable income from $2,001 to $5,000)

High: 6.6% (on taxable income above $60,000).

Effective tax rate: 3.83% for single filers, 5.53% for joint filers.

The City of Wilmington taxes wages of everyone who lives or works there at 1.25%.

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Taxpayers age 60 and older can exclude up to $12,500 of pension and other retirement income (up to $2,000 for taxpayers younger than age 60). Eligible retirement income includes dividends, capital gains, interest, net rental income from real property and qualified retirement plans (e.g., IRAs, 401(k) plans, Keogh plans, and government deferred compensation plans).

Railroad Retirement benefits are also exempt.

Property Taxes

In Delaware, residents pay an average of $604 in taxes per $100,000 of assessed home value.

Tax breaks for seniors: Homeowners 65 and older can get a credit equal to half of school property taxes, up to $400. However, residents who moved to Delaware after January 1, 2018, cannot receive the credit until they have lived in the state for ten consecutive years. 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.

Vehicle Taxes

At registration, state charges a fee for documentation. The rate is 4.25% of purchase price or NADA book value, whichever is greater.

Inheritance and Estate Taxes