Boomers considering a move in retirement can benefit from knowing how their new local taxes will affect their lifestyle. According to the Retirement Living Information Center (www.retirementliving.com), some states are more “tax friendly” than others. The company just released its 2009 “Taxes by State” to help with the decision-making.
“In assessing prospective locations, retirees may discover that some states are not the tax havens they are reported to be,” said Tom Wetzel, president of the Retirement Living Information Center, in a statement. “It is important to look beyond the state taxes and drill down to check local property, sales and income taxes. The presence or absence of a state income tax may not be the best criteria for selecting a retirement destination.”
Tax facts from the Retirement Living Information Center:
- Seven states do not tax individual income – 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 for New Hampshire and 6 percent for Tennessee for 2008).
- Currently, 27 of the 41 states (and the District of Columbia) that have broad-based personal income taxes do not tax Social Security benefits. The remaining 14 states do tax Social Security to some extent — Minnesota, Nebraska, North Dakota, Rhode Island and Vermont tax Social Security income to the extent it is taxed by the federal government. Connecticut, Iowa, Kansas, Missouri, and Montana tax Social Security above an income floor. Iowa will gradually phase out its Social Security tax levy from 2008 through 2014.
- With regard to pension income, some states exempt it all, others tax some or none. Those exempting pension income entirely are Pennsylvania and Mississippi.
- Beginning with the 2008 tax year Kansas residents can exclude Social Security income from their taxes if their adjusted gross income (AGI) is less than $75,000. Missouri will phase out its Social Security tax levy by 2010. Colorado, New Mexico and Utah require that federally untaxed Social Security benefits be added back to federal AGI to calculate the base against which their broad age-determined income exclusions apply.
- Some states, such as Ohio and Pennsylvania, have jurisdictions that impose local as well as state income taxes. Six states (California, Montana, Nebraska, New Mexico, North Dakota and Vermont) are particularly tough on retirees because they have a relatively high top tax bracket and fully tax most retirement income.
“It is important to note that states without income taxes have one less revenue-raising option. Therefore, they may be more inclined to turn to increases in sales or property tax to shore up their budgets,” Wetzel added.
Based on data from the 2005-2007 American Community Survey by the U.S. Census Bureau, property taxes paid by homeowners in certain New York and New Jersey counties were the highest in the country, while several Louisiana parishes paid the lowest.