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

State-by-State Guide to Taxes on Retirees

Arizona

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The Bottom Line
Flag of Arizona

Most Tax-Friendly

Sunshine, sunshine, sunshine — and low taxes. The Grand Canyon State exempts Social Security benefits from state income taxes, plus up to $2,500 of income from federal and Arizona government retirement plans. Up to $3,500 of military retirement income is also tax-free in Arizona. While plenty of other states have more generous exemptions, Arizona’s low income tax rates keep the net burden down.

Sales taxes are above average in the state—the average combined (state and local) rate is 8.39% (11th-highest in the nation). However, Arizona does not have an estate or inheritance tax, which makes it a more attractive retirement destination for wealthier seniors.

State Sales Tax

5.6% state levy. Localities can add as much as 5.6% to that, but the average combined levy is 8.39%, according to the Tax Foundation. Many cities in Arizona levy a tax on food for home consumption, like Tempe (1.8%) and Scottsdale (1.65%); Phoenix and Mesa are notable exceptions.

Income Tax Range

Low: 2.59% (on up to $21,202 of taxable income for married joint filers and up to $10,602 for all others)

High: 4.54% (on more than $317,990 of taxable income for married joint filers and more than $158,996 for all others)

Effective tax rate: 2.77% for single filers, 3.24% for joint filers

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

Up to $2,500 of income from federal government, designated Arizona state government, and Arizona local government retirement plans is exempt.

In addition, starting in 2019, up to $3,500 of military retirement income is exempt (previously $2,500).

Railroad Retirement benefits are also exempt.

Property Taxes

In Arizona, residents pay an average of $754 in taxes per $100,000 of assessed home value.

Tax breaks for seniors: 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 2018, one owner of a property must have total income of $36,000 or less, and multiple owners of a property must have combined income of $45,000 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.

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.

Vehicle Taxes

Sales tax is due; rate depends on home address of buyer. Arizona levies an annual tax based on a car’s sticker price and age. The assessment is set at 60% of the MSRP price, reduced by 16.25% for each year since the vehicle was first registered in Arizona. The rate is $2.89 (new vehicles) /$2.80 (used vehicles) for each $100 of assessed value. For example, for a new vehicle that costs $25,000, the first year assessed value would be $15,000 and the VLT would be $420.

Inheritance and Estate Taxes

None.

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