Kiplinger.com
11/4/2010
Some states offer attractive tax benefits for retirees. Not these states, however. Here’s our list of Tax-Unfriendly States for Retirees, either because of higher-than-average taxes across the board, or for policies that don’t exempt much retirement income from state taxation. Where’s the best state for you to retire? For retirees living on a fixed income, state income and sales taxes can really eat into your nest egg.
California
State Income Tax: 1.25% – 10.55%
State Sales Tax: 8.25%
Inheritance Tax: No
The Golden State is a retiree’s tax nightmare. Although Social Security benefits are exempt from state income taxes, all other forms of retirement income are fully taxed. Californians pay some of the highest income taxes in the U.S. State and local sales taxes can reach 10.5% in some cities and towns, although food and prescription drugs are exempt. Real estate is assessed at 100% of cash value, but taxes are capped at 1% of value.
Rhode Island
State Income Tax: 3.75% – 9.9%
State Sales Tax: 7%
Inheritance Tax: No
Retirees face plenty of tax shoals in the Ocean State. Social Security benefits are taxed just like they are by the federal government. Rhode Island nicks virtually all other sources of retirement income, too. Starting this year, capital gains are taxed as ordinary income, eliminating the lower capital-gains rate in effect before 2010. The nation’s smallest state also has one of the biggest statewide sales-tax rates — 7% — although it excludes food, medicine, some clothing and precious metal bullion. The Tax Foundation says Rhode Island’s median real estate taxes are the fifth-highest in the U.S.
New Jersey
State Income Tax: 1.4% – 8.97%
State Sales Tax: 7%
Inheritance Tax: Yes
Its nickname may be the Garden State, but New Jersey is a thorny thicket for some retirees. Median real estate taxes are the highest in the nation, according to the Tax Foundation. There are a few bright spots: New Jersey does not tax Social Security benefits and military pensions. It also allows residents 62 or older with incomes of $100,000 or less to exclude up to $15,000 ($20,000 for married couples filing jointly) of pensions, annuities and IRA withdrawals. Groceries, medicine and clothing are exempt from sales tax. The state imposes an inheritance tax on the transfer of real and personal property worth $500 or more, but bequests to family members are exempt.
Read the rest at Kiplingers. Also at Kiplingers, 10 Tax-Friendly States for Retirees
H/T Rhode Island Statewide Coalition newsletter
