Moving to a new location to retire is common among United States citizens. However, in order to really adjust well in a new state, many things have to be kept in mind. Among all those things, the most important is the tax policy of the state. Tax burden is an important factor which determines the quality of life of retirees in a new state.
Usually, retirees only generate income from limited sources. Taxes on those sources of income tend to be very hard on their pockets. So, it is preferable to move to a more tax-friendly state after retirement.
Tax-friendly states are those states, where the rates of income tax, sales tax, property and other taxes are less as compared to other places. Most tax-friendly states for retirees usually exempt senior citizen’s social security benefits from taxable income and also have low income, sales and property tax rates. Based on numerous factors, the following tax-friendly states are considered to be the best for retirees:
The oil and mineral rich state is one of the most tax-friendly states due to the abundant revenue generated from its mineral goods. The tax on fuel goods is just 14 cents per gallon, while the average sales tax rate is just 4 percent, which is very low.
Mississippi is only tax-friendly for senior citizens and retirees as it excludes social security from income tax and also exempts all retirement income from income tax. The sales tax rate for rest of the citizens is 7 percent, but, health care and medicine are exempted from sales tax.
In Pennsylvania, some of retirement income is excluded from tax deductions as social security and pension income is not taxed. The state-wide sales tax rate is 6%. However, life’s basic necessities such as food, clothing and healthcare are exempted from sales tax.
Kentucky, like other retirement heavens, excludes social security benefit from taxable income and allows $41,000 of retirement income to be excluded from calculated taxes. Sales tax rate is 6 percent throughout the state and also gives homestead benefits to senior citizens.
Although some cities of Alabama are less tax-friendly than others, it is an overall good state to retire. The state-wide property tax is just 2 – 5 percent. Sales tax throughout the state is merely 4 percent and medicine is exempted, but some of the less tax friendly cities of Alabama impose a greater sales tax rate of up to 8 percent.
Georgia is a good state for retirees as far as tax is concerned. Social security is not taxed and retirement income up to $35,000 is also exempted from taxes. Income tax rate is at most 6%, while sales tax rate is merely 4 percent. Medicine and food are exempted for taxes.
Oklahoma is a hospitable state for retirees, as retirement income up to $10,000 is exempted from taxes. Income is taxed at the up-most rate of 5.5 percent while sales tax is deducted at the rate of 4.5 percent. However, some individual cities may have higher rates, due to local circumstances.
8. South Carolina:
South Carolina allows senior citizens to deduct up to $15,000 from the tax on their income, and social security benefits are also excluded from taxable income. Property taxes are as low at about 4 percent of market value. Retirees are given a homestead exemption of $50,000 when dealing with property taxes. Sales tax is higher than most states with a rate of 6 percent, while medicine is exempted from this tax.
Alaska’s weather is tough for retirees but tax policy is very good for retired people. Pension and social security benefits are not taxable. Income is taxed for non senior citizens at 2- 5 percent while sales tax is at most 7 percent.
Nevada’s sales tax rate is quite high to compete with; however, it is very soft on retirees as far as tax is concerned, as it does not include social security, income and pension of senior citizens in taxes. Sales tax rate in Nevada is 6.85%.
11. South Dakota:
South Dakota is one of the most tax friendly states of the country, not only for senior citizens, but for all its residents. Rates of most taxes are among the lowest in the U.S., and pension and social security is not taxed.
Louisiana gives many tax benefits to the aged, including an exemption of $6,000 on annual pension income as well as complete exemption of social security benefits. Income tax rates are as low as 2 percent and as much as 6 percent. Property tax is merely 10 percent, the lowest in the nation. However, sales tax is deducted at a rate of 4 percent, and food and medicine are excused from tax deduction.
Sales tax and property taxes are high but pension income and social security benefits are exempted from taxation. Sales tax is 6 percent from which food and drugs are exempted.
Delaware is one of the most tax-friendly states, not only for retirees, but for all residents due to low rates of sales, property and income taxes. Senior citizens can not only exclude $12,500 from calculated taxes, but can further deduct $2,500 if their deductions are not itemized. They also get exemption in property taxes.
Retirees need to think a lot about moving into a new state after retirement, as they have limited sources of income to meet their needs. Therefore, it is wiser to retire to a more tax-friendly state, if all other factors are same. Only then, low tax will be beneficial for senior citizens and their families.