Tool | November 2017

State-by-State Guide to Taxes on Retirees

Arizona

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The Bottom Line
Map of Arizona

Mixed Tax Picture

The Grand Canyon State 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 is up to $2,500 of some retirement income. The shadow on this picture? Stiff sales taxes, which in many places are also levied on groceries.

State Sales Tax

5.6% state levy. Localities can add as much as 5.3% to that, but the average combined levy is 8.25%, according to the Tax Foundation. Many cities in Arizona levy a tax on food for home consumption; Phoenix and Mesa are notable exceptions.

Income Tax Range

Low: 2.59% (on up to $20,000 of taxable income for married joint filers and up to $10,000 for all others)

High: 4.54% (on more than $300,000 of taxable income for married joint filers and more than $150,000 for all others)

Effective income tax rate: 3.0%/individual, 3.3%/joint

Social Security

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 exempt. Out-of-state government pensions are fully taxed.

IRAs

Taxable at ordinary income rates.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Taxable at ordinary income rates.

Private Pensions

Taxable at ordinary income rates.

Public Pensions

Railroad Retirement benefits are exempt. Up to $2,500 total of military, civil-service, and Arizona state and local government pensions are exempt. Government pensions from states other than Arizona are fully taxed.

Property Taxes

The median property tax on Arizona's median home value of $176,700 is $1,330.

Tax breaks for seniors: Single homeowners and renters 65 and older who earn $3,750 or less and married couples who earn $5,500 or less are eligible for a property tax credit.

Homeowners who are at least 70 years old, have either resided in their primary residence for at least six years or have lived in the state for at least 10 years, and do not receive more than $10,000 of taxable income per year can defer their property taxes.

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 2017, one owner of a property must have total income of $35,280 or less, and multiple owners of a property must have income of $44,100 or less) 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 tax or estate tax.