The most (and least) tax-friendly states in the US

The Best States to Retire for Taxes

The most (and least) tax-friendly states in the US
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For seniors who plan to move to a new city or state for their retirement, there are a number of factors to consider. Weather is important to many retirees, as are amenities and attractions such as golf courses, beaches, parks and senior centers. Another major consideration is the cost of living in a certain area. Taxes are a big part of that.

State and local taxes can have a particularly significant effect on retirees. As described below, income taxes on things Social Security retirement benefits and retirement account withdrawals vary widely from one state to the next. wise, there are vast differences between the property and sales tax rates across the country.

In short, the taxes seniors pay during retirement can vary greatly depending on where they live.

In a state Wyoming, which has no income tax along with low sales and property taxes, retirees can expect to have a very small tax bill.

On the other hand, taxes in a state Nebraska, which taxes all retirement income and has high property tax rates, the overall state and local tax bill for a senior could be thousands of dollars higher.

A financial advisor can help you plan for retirement and other financial goals. Financial advisors can also help with investing and financial plans, including taxes, homeownership, insurance and estate planning, to make sure you are preparing for the future.

Social Security

Most states do not tax Social Security income at all. Some of these, Texas and Florida, do not have an income tax. Others provide a specific deduction or exemption for Social Security retirement benefits. The states that tax Social Security are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

Among these states, nine provide some sort of deduction or credit to limit or offset the cost of the tax for retirees. The remaining four states (North Dakota, Nebraska, Rhode Island and West Virginia) tax all Social Security income that is taxed at the federal level.

Retirement Account and Pension Income

The way a state handles retirement account and pension income can have a huge impact on the finances of a retiree. Many states do not provide any kind of deduction, exemption or credit on withdrawals from a retirement account such as a 401(k) or IRA.

How might that affect a typical retiree? Let’s say your effective state tax rate in one of these states is 4% and your annual income from your 401(k) is $30,000. That would add up to taxes of $1,200 on that retirement account income — taxes that you wouldn’t have to pay in states Alaska (which has no income tax) and Mississippi (which exempts retirement account income).

Exemptions for pension income are more common. Only nine states fully tax income from a government pension, while 16 tax income from a private employer pension. The other states either exempt that income or provide a deduction or credit against it.

Property Taxes and Senior Property Tax Relief Programs

Photo credit: ©iStock.com/Frederic Prochasson

Homeownership is a good way for seniors to lock in their housing costs for the long run so that they don’t have to worry about shifts in the housing or rental market.

In some states, however, high property taxes or property taxes that can grow rapidly from one year to the next serve to discourage retirees from owning a home.

Property tax rates and rules are drastically different between states.

For example, New Jersey homeowners typically spend around $8,400 annually in property taxes. In Alabama, most homeowners spend much less, at right around $600 a year.

One way many states help retirees limit the burden of property taxes is by offering exemptions or circuit breakers. The terminology varies by state, but exemptions (sometimes called homestead exemptions) typically allow seniors to protect part of their home’s value from property taxes. They often have income limits, so households earning more than a certain amount are not eligible.

Circuit breakers can have the same effect as an exemption. Sometimes, they also limit the amount property taxes can increase from one year to the next for seniors.

Property tax deferrals are another helpful form of property tax relief for seniors. Deferrals allow seniors and retirees to put off payment of some or all of their property taxes until a later time. It is typical for deferred property tax payments to be subtracted from the revenue of an eventual home sale, meaning they never come a senior’s income.

Sales Taxes

It is easy to overlook or forget about sales tax because they are paid gradually instead of all at once. You don’t receive a sales tax bill, in other words. But sales taxes are important for seniors because they often have a fixed income and spend a significant portion of that income on potentially taxable items.

Four states (Oregon, New Hampshire, Montana and Delaware) have no state or local sales taxes. Alaska has no state sales tax but does have some local sales taxes.

Hawaii has a general excise tax that's very similar to a sales tax, though at 4.00% it would be one of the lowest sales taxes in the U.S. In the remaining states, total state and average local tax rates range from 5.

34% to 9.55%. Tennessee has the highest sales tax rates in the U.S.

Most states with a sales tax provide a number of exemptions that benefit seniors. The most common exemptions are for groceries, prescription drugs and medical equipment.

Estate and Inheritance Taxes

Another type of tax that is of particular importance to retirees is the estate tax. In recent years, legislatures across the U.S. have either repealed their state estate taxes or have increased the local estate tax exemption. For reference, the estate tax exemption is the limit below which estates do not owe taxes.

The federal estate tax exemption has increased over the years to $11.58 million in 2020 and $11.7 million in 2021. Of the 12 states (and Washington, D.C.) that have their own estate tax, seven have an exemption of $4 million or less. Massachusetts and Oregon have the lowest exemption at $1 million.

Similar to the estate tax, an inheritance tax affects property that's passed on to loved ones. The tax applies not to the estate itself, but to the recipients of the property from that estate. For example, if you receive $1,000 as an inheritance and are subject to a 10% inheritance tax, you would pay $100 back in taxes.

Six states have an inheritance tax. Of these, one state (Maryland) also has an estate tax. Inheritance taxes typically provide exemptions or lower rates for direct family members, while fully taxing non-relatives.

Источник: https://smartasset.com/retirement/retirement-taxes

Surprising Data Reveals Top 25 Tax-Friendly States To Retire

The most (and least) tax-friendly states in the US

If you want to stretch your retirement savings as far as possible, don’t focus solely on the cheapest places to retire. Pay attention to taxes in the places you’re considering, too, because they can take a big bite your retirement income.

GOBankingRates looked at income, sales and property tax rates across America to find out whether Social Security is taxed, all to help you pinpoint the most tax-friendly states for retirees.

Last updated: Sept. 16, 2020

25. Massachusetts

Income tax: 5.1%
Property tax: 1.13%
State sales tax: 6.25%
State tax on Social Security: None

Despite its nickname “Taxachusetts,” Massachusetts isn’t even close to being the worst state taxwise for retirees. In fact, it beats out 25 of them. For starters, it doesn’t tax Social Security benefits — and its 6.25 percent sales tax rate is lower than in the majority of states. However, its income and property tax rates are among the top 20 highest.

24. South Carolina

Income tax: 7%
Property tax: 0.54%
State sales tax: 7.22%
State tax on Social Security: None

South Carolina has the sixth-lowest property tax rate, and Social Security benefits escape taxes. But the state’s income tax rate is the sixth highest in our rankings.

23. Pennsylvania

Income tax: 3.07%
Property tax: 1.48%
State sales tax: 6.34%
State tax on Social Security: None

Pennsylvania’s income and sales tax rates rank among the 20 lowest in the U.S. But its property tax rate is the 11th highest.

22. North Carolina

Income tax: 5.5%
Property tax: 0.83%
State sales tax: 6.9%
State tax on Social Security: None

Social Security benefits escape state taxes in North Carolina. But the state’s income and sales tax rates are higher than the rates in more than half of the states.

21. Louisiana

Income tax: 4%
Property tax: 0.5%
State sales tax: 10%
State tax on Social Security: None

Retirees can benefit from Louisiana’s low income tax rate and no taxes on Social Security benefits. However, its 10 percent sales tax is the highest in the nation.

20. Texas

Income tax: None
Property tax: 1.62%
State sales tax: 8.19%
State tax on Social Security: None

Seven of the cheapest cities to retire are in Texas, a separate GOBankingRates study found. However, Texas doesn’t make it into our top 10 most tax-friendly states for retirees because of its high sales tax and property tax rates.

19. Kentucky

Income tax: 5.8%
Property tax: 0.79%
State sales tax: 6%
State tax on Social Security: None

Although the income tax rate is higher in Kentucky than in a majority of states, retirees don’t have to worry about a state tax on Social Security.

Plus, Kentucky’s largest city — Louisville — has one of the best neighborhoods for retirement in America thanks to a low cost of living, plenty of amenities and a relatively high percentage of adults 65 and older, a GOBankingRates study found.

Related: The Most and Least Tax-Friendly Countries

18. Maryland

Income tax: 4.75%
Property tax: 1%
State sales tax: 6%
State tax on Social Security: None

Maryland ranks among the top 20 best states for retirement taxes because it doesn’t tax Social Security benefits. Its income tax rate is lower than the rate in half of the states, and its sales tax is the 12th lowest. But property taxes in Maryland are high.

17. Alabama

Income tax: 5%
Property tax: 0.38%
State sales tax: 9.01%
State tax on Social Security: None

Alabama has the second-lowest property tax in our rankings. But its sales tax rate is the fourth highest in the U.S.

16. Virginia

Income tax: 5.75%
Property tax: 0.84%
State sales tax: 5.63%
State tax on Social Security: None

Virginia retirees benefit from no taxes on Social Security and the 10th-lowest sales tax. But the income tax rate is higher than in the majority of states.

15. California

Income tax: 4%
Property tax: 0.71%
State sales tax: 8.25%
State tax on Social Security: None

Retirees benefit from a relatively low income tax and no tax on Social Security income in California. Because of the state’s high cost of living, though, even a nest egg of $1 million won’t last as long in retirement as in most other states.

14. Mississippi

Income tax: 5%
Property tax: 0.61%
State sales tax: 7.07%
State tax on Social Security: None

Mississippi is one of the states that require the least amount of retirement income to live comfortably, a GOBankingRates study found. Retirees also benefit from low taxes on retirement income because Social Security income isn’t taxed in Mississippi.

13. Indiana

Income tax: 3.23%
Property tax: 0.84%
State sales tax: 7%
State tax on Social Security: None

Indiana’s income tax rate ranks among the 20 lowest in the U.S. Plus, there’s no state tax on Social Security. But Indiana’s sales tax is higher than in more than half of the states.

12. Oregon

Income tax: 9%
Property tax: 0.95%
State sales tax: None
State tax on Social Security: None

Oregon has the highest income tax rate in the U.S. However, it’s still one of the more tax-friendly states for retirees because it doesn’t tax Social Security income and has no sales tax.

11. Arizona

Income tax: 2.88%
Property tax: 0.66%
State sales tax: 8.25%
State tax on Social Security: None

There’s a reason Arizona is a haven for retirees. They can escape the cold weather and a big tax bill by moving here. Its income tax rate is among the lowest in the U.S., and Social Security benefits aren’t taxed.

In fact, one of Arizona’s biggest cities — Tucson — is one of the best places to live on only a Social Security check, another GOBankingRates study found.

10. Hawaii

Income tax: 7.2%
Property tax: 0.29%
State sales tax: 4.35%
State tax on Social Security: None

The cost of living is high in Hawaii, but retirees can hang on to more of their income to cover expenses because the tax bite is small in the state. Social Security benefits escape state taxes, and Hawaii has the lowest property tax rate in our rankings. Plus, its capital and largest city — Honolulu — is one of the coolest places to retire in the world.

9. Tennessee

Income tax: None
Property tax: 0.71%
State sales tax: 9.46%
State tax on Social Security: None

Tennessee doesn’t tax Social Security benefits. But Tennessee retirees need to watch out for the state’s sale tax, which is the second highest in the U.S.

8. South Dakota

Income tax: None
Property tax: 1.19%
State sales tax: 6.39%
State tax on Social Security: None

South Dakota is another one of those states with no income tax. And Social Security benefits escape taxes in the state. But its property tax rate is higher than in a majority of states.

Read: Retirees Confess What They Wish They’d Done With Their Money

7. Florida

Income tax: None
Property tax: 0.9%
State sales tax: 6.8%
State tax on Social Security: None

No taxes on income or Social Security benefits make Florida one of the most tax-friendly states for retirees. Its property and sales tax rates rank in the middle of states.

6. Nevada

Income tax: None
Property tax: 0.65%
State sales tax: 7.98%
State tax on Social Security: None

Nevada is one of the states that do not tax Social Security. Plus, it doesn’t have a state income tax. However, the sales tax in Nevada is higher than in most states.

5. Washington

Income tax: None
Property tax: 0.89%
State sales tax: 6.29%
State tax on Social Security: None

Washington is one of the states with the lowest taxes for retirees because it has no state income tax or a tax on Social Security. Plus, the property tax rate is lower than in half of the states.

On top of that, Washington’s capital — Olympia — is one of the most affordable cities for retirees who want an active lifestyle, a GOBankingRates study found.

4. New Hampshire

Income tax: None
Property tax: 1.94%
State sales tax: None
State tax on Social Security: None

New Hampshire is one of the best places to live for retirees to escape taxes. It has no sales tax, no state income tax and no tax on Social Security. The only reason New Hampshire isn’t the No. 1 tax-friendly state for retirees is because its property tax rate is the third highest in the U.S.

3. Delaware

Income tax: 5.55%
Property tax: 0.57%
State sales tax: None
State tax on Social Security: None

Delaware is one of the best states to retire taxwise because there is no state tax on Social Security or sales tax. Plus, its property tax rate is among the lowest in our rankings.

2. Wyoming

Income tax: None
Property tax: 0.52%
State sales tax: 5.41%
State tax on Social Security: None

Wyoming is the second-best state to retire to avoid a big tax bite.

There’s no state income tax or tax on Social Security benefits. Plus, Wyoming’s sales and property tax rates are among the lowest in the U.S. It’s also one of the best states to retire rich thanks to a relatively low cost of living and competitive rates on interest-bearing savings accounts.

1. Alaska

Income tax: None
Property tax: 0.97%
State sales tax: 1.76%
State tax on Social Security: None

Alaska is the most tax-friendly state for retirees because it has no state income tax or tax on Social Security. And its sales tax rate is the fifth lowest in the U.S. But keep this in mind: The cost of living in Alaska is higher than in most states.

Taxes and Retirement — How Does Your State Compare?

Retirees need to consider the impact taxes will have on their income. But that’s not the only thing they should think about when deciding where to retire.

There are several factors to consider when looking for a place to retire — including the cost of living and access to healthcare. A state that isn’t the most tax-friendly might actually be a good fit for your retirement needs.

More From GOBankingRates

Methodology: GOBankingRates examined four tax rates: 1) average state and local sales tax, sourced from the Tax Foundation; 2) state tax on Social Security benefits, sourced from Kiplinger; 3) effective state property tax, sourced from the National Association of Home Builders; and 4) state income tax rate the median income of adults ages 65 to 74, sourced from the Bureau of Labor Statistics. State tax on Social Security benefits was weighted twice as much as other taxes.

This article originally appeared on GOBankingRates.com: Surprising Data Reveals Top 25 Tax-Friendly States To Retire

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Источник: https://www.yahoo.com/now/most-least-tax-friendly-states-100654153.html

States with the Lowest Taxes and the Highest Taxes

The most (and least) tax-friendly states in the US

Where you live can help or hinder your ability to make ends meet. A myriad of taxes—property, license, state and local sales, property, inheritance, estate and excise taxes on gasoline—eat away at your disposable income. Weighing the tax landscape against your financial picture lets you stretch your dollars. Here's a roundup of the highest and lowest taxes by state.

“Location, location, location” is a focus that applies to more than just housing. Where you live can help or hinder your ability to make ends meet.

A myriad of taxes — such as property, license, state and local sales, inheritance, estate, and excise taxes — can eat away at your income. Often, the biggest tax ticket citizens face after paying the Internal Revenue Service is the one their state presents. As a result, identifying the states with the lowest taxes might be a smart financial move to make.

Currently, 41 states and the District of Columbia levy a personal income tax. Weighing the tax landscape against your financial picture could help you stretch your dollars further.

10 states with the highest personal income tax rates

A comparison of 2020 tax rates compiled by the Tax Foundation ranks California as the top taxer with a 12.3% rate, unless you make more than $1 million. Then, you have to pay 13.3% as the top rate. The additional tax on income earned above $1 million is the state's 1% mental health services tax.

The top 10 highest income tax states (or legal jurisdictions) for 2020 are:

  1. California 13.3%
  2. Hawaii 11%
  3. New Jersey 10.75%
  4. Oregon 9.9%
  5. Minnesota 9.85%
  6. District of Columbia 8.95%
  7. New York 8.82%
  8. Vermont 8.75%
  9. Iowa 8.53%
  10. Wisconsin 7.65%

Each of these states has a personal income tax floor, deductions, exemptions, credits, and varying definitions of taxable income that determine what a citizen actually pays.

10 states with the lowest personal income tax rates

Only seven states have no personal income tax:

  • Wyoming
  • Washington
  • Texas
  • South Dakota
  • Nevada
  • Florida
  • Alaska

In addition, Tennessee and New Hampshire limit their tax to interest and dividend income, not income from wages.

Among the states that tax income, Pennsylvania's 3.07% flat tax ranks the Keystone State as the 10th lowest in the nation for 2020.

Low personal income tax rates can be misleading; a lack of available tax deductions, for example, can raise the effective rate you pay.

The Retirement Living Information Center states that figuring your total tax burden, including sales and property taxes, can give you a more accurate reading on affordability, especially if you're on a fixed income.

However, these states with the lowest taxes on income can be a good place to start looking for a more affordable location.

States with the highest and lowest property taxes

Property tax falls under local, not state, jurisdiction. Median household property tax payments from analysis performed by the Tax Foundation — as a percentage of median household income from the Census Bureau's 2018 American Community Survey — cites these as the counties with the most expensive property tax:

  • Essex County, New Jersey 16.86%
  • Passaic County, New Jersey 14.62%
  • Union County, New Jersey 12.70%

These Louisiana parishes hold the least expensive spots for property tax as a percent of income:

  • Assumption Parish 0%
  • Vernon Parish 0.45%
  • Grant Parish 0.68%

Louisiana carries some of the lowest property tax rates as a percentage of earned income because it offers a homestead exemption. This law allows the first $7,500 of assessed property values to forego having property taxes levied against them.

For reference, assessed home values represent 1/10 of the home's actual value. For example, a $100,000 home would have a $10,000 assessed value. Therefore, Louisiana's homestead exemption allows the first $75,000 of home value not to count toward calculating your property tax bill, which goes a long way toward lowering the percentage of income that goes toward these taxes.

Sales tax takers and leavers

If you're a consumer, you'll want to consider that all but four states — Oregon, New Hampshire, Montana and Delaware — rely on sales tax for revenue. Alaska only levies a paltry 1.76% sales tax rate.

Of these, Alaska also has no income tax, thanks to the severance tax it levies on oil and natural gas production.

37 states, including sales-tax-free Alaska and Montana, allow local municipalities to impose a sales tax, which can add up.

Lake Providence, Louisiana has the dubious distinction of most expensive sales tax city in the country in 2020, with a combined state and city rate of 11.45%.

Factoring the combination of state and average local sales tax, the top five highest total sales tax states as ranked by the Tax Foundation for 2020 are:

  • Tennessee 9.55%
  • Arkansas 9.53%
  • Louisiana 9.52%
  • Washington 9.23%
  • Alabama 9.22%

Residents of these states pay the least in sales taxes overall:

  • Alaska 1.76%
  • Oregon 0%
  • Delaware 0%
  • Montana 0%
  • New Hampshire 0%

Combined sales and income tax leaders

The Tax Foundation interprets individual tax burden by what taxpayers actually spend in local and state taxes, rather than report these expenses from the state revenue perspective used by the Census Bureau. Its 2020 State and Local Tax Burden Rankings study reported that Americans paid an average rate of 9.9% in state and local taxes.

According to the foundation, the top five states with the highest state and local tax combinations are:

  • New York 12.7%
  • Connecticut 12.6%
  • New Jersey 12.2%
  • Illinois 11.0%
  • California and Wisconsin 11.0%

The same states have ranked as the top three consistently since 2005, according to the foundation.

Although taxes may not be the first thing you consider when deciding where to live, knowing the tax situations of the locations you're considering for a move could help you save in the long-run, especially when retiring.

Источник: https://turbotax.intuit.com/tax-tips/fun-facts/states-with-the-highest-and-lowest-taxes/L6HPAVqSF

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