Helpful miscellaneous articles regarding
our retirement plan and planning. Like
you, I review my retirement nestegg and plan from time to time. Recently, I went though some continued
education for some credentials I maintain and it occurred to me that we all
could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
https://www.retirementliving.com/taxes-by-state
Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination. This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesn’t necessarily ensure a low total tax burden.
States raise
revenue in many ways including sales taxes, excise taxes, license taxes, income
taxes, intangible taxes, property taxes, estate taxes and inheritance taxes.
Depending on where you live, you may end up paying all of them or just a few.
This section of our
Web site provides you with information on state income taxes, sales and fuel
taxes, taxes on retirement income, property taxes and inheritance and estate
taxes, as well as sales and fuel taxes. It is intended to give you some insight
into which states may offer a lower cost of living. To check out the state
where you want to retire, just select from the state menu above.
Introduction to
Taxes by State
Over the past few
years, property prices have plummeted in many areas, but the same can’t be said
for taxes, and now both real estate and taxes may be on the rise, according to
CCH, a Wolters Kluwer business and global provider of tax, accounting and audit
information. There are a lot of factors to consider in deciding where to retire
and what’s going to be affordable. The different types of taxes you may
need to pay are among the costs to look at.
Taxes that seniors
should consider when evaluating the financial implications of where they may
want to call home in retirement include:
* State taxes
on retirement benefits;
* State income tax rates;
* State and local sales tax;
* State and local property taxes; and
* State estate taxes.
* State income tax rates;
* State and local sales tax;
* State and local property taxes; and
* State estate taxes.
Taxability of
Retirement Benefits Varies From State to State
Currently, seven
states do not tax individual income – retirement or otherwise: Alaska, Florida,
Nevada, South Dakota, Texas, Washington and Wyoming.
Two other states –
New Hampshire and Tennessee – impose income taxes only on dividends and
interest (5 percent flat rate for both states).
In the other 41
states and the District of Columbia, tax treatment of retirement benefits
varies widely. For example, some states exempt all pension income or all
pension income or all Social Security income. Other states provide only
partial exemption or credits and some tax all retirement income.
States exempting
pension income entirely for qualified individuals are Illinois, Mississippi and
Pennsylvania.
States that exempt
or provide a credit for a portion of pension income include: Arkansas,
Colorado, Delaware, Georgia, Hawaii, Iowa, Kentucky, Louisiana, Maine,
Maryland, Michigan, Missouri, Montana, New Jersey, New Mexico, New York, Ohio,
Oklahoma, Oregon, South Carolina, Utah, Virginia and Wisconsin.
States where
pension income is taxed include: Alabama, Arizona, California, Connecticut,
District of Columbia, Idaho, Indiana, Kansas, Massachusetts, Minnesota,
Nebraska, North Carolina, North Dakota, Rhode Island, Vermont and West
Virginia.
(See chart below for additional detail.)
Significant State
Tax Reforms
States enacting
changes to their income tax laws for retirement plans in 2016 include:
§ Minnesota: Military retirement pay (including pensions) is
deductible. (Change is effective beginning with
2016 tax year.)
§ New Jersey: The gross (personal) income tax
exclusion on pension and retirement income is increased over a four-year period
from $20,000 to $100,000 for married taxpayers filing jointly, from
$15,000 to $75,000 for single and head-of-household filers, and from
$10,000 to $50,000 for married taxpayers filing separately. (Change is effective beginning with 2017 tax year.)
§ Rhode Island: Taxpayers who have reached the Social
Security retirement age are eligible for a $15,000 exemption on their
retirement income. This exemption applies to single taxpayers with
federal adjusted gross incomes of up to $80,000 and for joint
taxpayers with federal adjusted gross incomes of up to $100,000 that
are otherwise qualified (these amounts will be adjusted annually for
inflation). (Change is effective beginning with
2017 year.)
§ South Carolina: A new deduction for military
retirement income is allowed. For taxpayers under 65 years of age, the
deduction is $5,900 for the 2016 ta year, but increases by $2,900 each year
until it is fully phased-in at $17,5000 in 2020. For taxpayers 65 years
of age or older, the deduction is $18,000 for the 2016 tax year, but increases
by $3,000 each year until it is fully phased-in at $30,000 in 2020. (Change is effective beginning with 2016 tax year.)
While some states
tax pension benefits, only 13 states impose tax on Social Security income:
Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New
Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.
These states either tax Social Security income to the same extent that
the federal government does or provide limited breaks for Social Security
income, often for lower-income individuals.
(See chart below for full detail on State Taxation of Retirement
Income.)
State Income,
Property, Sales Taxes Can Add Up
In addition to
state taxes on retirement benefits, other taxes to consider when evaluating
financial factors on where to retire include:
§ State income tax rates:For example, income tax rates also
can have a significant financial impact on retirees in determining where they
want to live and can vary widely across the country.While seven states have no
income tax and two tax only interest and dividend income, several have a
relatively low income tax rate across all income levels. For example, the
highest marginal income tax rates in Arizona, Kansas, New Mexico, North Dakota
and Ohio are below 5 percent. Some states have a relatively low flat tax
regardless of income, with the five lowest: Colorado (4.63 percent), Illinois
(3.75 percent), Indiana (3.23 percent), Michigan (4.25 percent) and
Pennsylvania (3.07 percent) for 2017.
§ State and local sales taxes: Forty-five states and the
District of Columbia impose a state sales and use tax (only Alaska, Delaware,
Montana, New Hampshire and Oregon do not impose a state sales and use tax,
although some Alaska localities do). States with a relatively high state
sales tax rate of 7 percent include Indiana, Mississippi, Rhode Island, and
Tennessee. California has a state sales tax rate of 7.25 percent.
Local sales and use taxes, imposed by cities, counties and other special
taxing jurisdictions, such as fire protection and library districts, also can
add significantly to the rate.
§ State and local property taxes: While property values have declined
over recent years in many areas, it has not necessarily been the case for
property taxes. However, many states and some local jurisdictions offer senior
citizen homeowners some form of property tax exemption, credit, abatement, tax
deferral, refund or other benefits. These tax breaks also are available to
renters in some jurisdictions. The benefits typically have qualifying
restrictions that include age and income of the beneficiary.
§ State estate taxes: Estate taxes also can influence
where seniors want to retire. Rules vary from state to state, as well as
from federal estate tax laws. While some states, such as Delaware and Hawaii,
follow the federal exclusion amount ($5,450,000 in 2016 and $5,490,000 in
2017), others do not. The latter category includes Illinois ($4 million),
Massachusetts ($1 million), and New York ($2,062,500 for deaths on or
after April 1, 2014, and before April 1, 2015, and $3,125,000 for deaths on or
after April 1, 2015, and on or before April 1, 2016; and $4,187,500 for deaths
on or after April 1, 2016 and before April 1, 2017).
Other states,
including Arizona, Kansas, and Oklahoma no longer impose an estate tax. Still
others, like California and Florida, technically still have such a tax on their
books, but collect no revenue because their tax is based on the now-repealed
federal credit for state death taxes. In general, this is an area of the law
that has been in a considerable state of flux in recent years and will probably
continue to be so in the foreseeable future. (For more information on estate tax issues, click
here)
Impact of State Income,
Property, and Sales Taxes
In addition to
state taxes on retirement benefits, other taxes that seniors should consider
when evaluating the financial implications of where they may want to retire
include:
State income tax rates. For example, income tax rates also
can have a significant financial impact on retirees in determining where they
want to live and can vary widely across the country.
While seven states
have no income tax and two tax only interest and dividend income, several have
a relatively low income tax rate across all income levels. For example,
the highest marginal income tax rates in Arizona, Kansas, New Mexico, North
Dakota and Ohio are below 5 percent. Some states have a relatively low
flat tax regardless of income, with the four lowest: Illinois (3.75 percent),
Indiana (3.3 percent), Michigan (4.25 percent) and Pennsylvania (3.07 percent)
for 2016.
State and local sales taxes. Forty-five states and the District
of Columbia impose a state sales and use tax (only Alaska, Delaware, Montana,
New Hampshire and Oregon do not impose a state sales and use tax). States
with a state sales tax rate of 7 percent include Indiana, Mississippi, New
Jersey, Rhode Island, and Tennessee. California has a state sales tax
rate of 7.5 percent. Local sales and use taxes, imposed by cities,
counties and other special taxing jurisdictions, such as fire protection and
library districts, also can add significantly to the rate.
State and local property taxes. While property
values have declined over recent years in many areas, it has not necessarily
been the case for property taxes. However, many states and some local
jurisdictions offer senior citizens homeowners some form of property tax
exemption, credit, abatement, tax deferral, refund or other benefits. These
tax breaks also are available to renters in some jurisdictions. The
benefits typically have qualifying restrictions that include age and income of
the beneficiary.
State estate taxes. Estate taxes also can influence
where seniors want to retire. Rules vary from state to state, as well as
from federal estate tax laws. While some states, such as Delaware and
Hawaii, follow the federal exclusion amount ($5,430,000 in 2015 and $5,450,000
in 2016) others do not. The latter category includes Illinois ($4
million), Massachusetts ($1million), and New York ($2,062,500 for deaths on or
after April 1, 2014, and on or before April 1, 2015, and $3,125,000 for deaths
on or after April 1, 2015, and before April 1, 2016; and $4,187,500 for deaths
on or after April 1, 2016 and on or before April 1, 2017).
Other states,
including Arizona, Kansas and Oklahoma, no longer impose an estate tax.
Still others, like California and Florida, technically still have such a
tax on their books, but collect o revenue because their tax is based on the
now-repealed federal credit for state death taxes. In general, this is an
area of the law that has been in a considerable state of flux in recent years
and will probably continue to be so in the foreseeable future.
State Taxation of
Retirement Income
The following chart
shows generally which states’ tax retirement income, including Social Security
and pension income for the 2016 tax year unless otherwise noted. States
shaded indicate they do not tax these forms of retirement income. (Click here)
Charts and Tables
to Compare States
§ Contact Phone Numbers for State Revenue Offices (or the
equivalent of a tax help office) (Click here)
~~~~~~~~~
(As
with any of these informative articles, anyone who needs someone to talk to
about
this
very subject contact me and I can direct you to a knowledgeable advisor).
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Full post disclaimer in left column. PCN Home Page is located at: http://pcn.homestead.com/home01.html
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