According to Kiplinger’s 2014 analysis of state taxes, retirees could find themselves paying state taxes on their Social Security income or laying it out for capital gains taxes, depending on where they live.
In addition, lots of states don’t care where your retirement income comes from; they’ll expect you to pay them their share.
So, if you’re looking for ways to cut expenses in retirement, you might want to stay away from these 10 states, where taxes are definitely unkind to retirees.
1. Rhode Island.
The smallest state has the biggest tax bill for retirees. State income tax rates range from 3.75-5.99 percent (and that’s after it lowered its top tax rate from 9.9 percent!), and the state will treat your Social Security checks the same as the federal government — taxing up to 85 percent of them. If you have a pension or other retirement income, don’t get cocky; you’ll be paying taxes on that, too.
In addition, the Ocean State has a sales tax of 7 percent and the 11th highest property taxes in the country, with Tax Foundation figures putting the median property tax on its median home value of $267,100 at $3,618.
Little Rhody will also get you after your demise, with a tax on estates of more than $921,655 and a top estate tax rate of 16 percent. Good thing surviving spouses are exempt from it, but your kids and other kin won’t be. The only good thing is that it doesn’t have an inheritance tax as well.
Bet you didn’t know that “green” in “Green Mountain State” stood for all the money it will rake in at your (retired) expense.
State income tax rates range from 3.55-8.95 percent. Most retirement income is taxed here, along with Social Security, just like they do in Rhode Island.
The state sales tax is 6 percent, but before you get too excited, you might want to remember that local municipalities can tack on another percent. While food to be consumed at home isn’t taxed, and neither are clothing or prescription and nonprescription drugs, prepared foods, restaurant meals and lodging are taxed at 9 percent, and 10 percent if you just have to have that glass of Merlot or pint of stout with dinner.
Vermont’s property taxes are even higher than Rhode Island’s, according to the Tax Foundation, the seventh highest in the country. If you have a median-priced home at $216,300, you’ll pay a median $3,444 a year for it. The town or municipality where you live will collect both parts of your tax bill — school property tax and municipal property tax. There’s also a state education tax on nonresidential and homestead property. And forget about getting a senior break on that bill. If your income is less than $99,000, though, you might qualify for a rebate on school and municipal property taxes, to a maximum of $8,000.
Estates of more than $2.75 million are taxed at a rate of up to 16 percent. Surviving spouses are exempt, and there’s no inheritance tax.
Military retirement pay is the only retirement income cut any kind of a break in the Constitution State, with half being exempt from taxes. Anything else, just fork it over. And Social Security? Single taxpayers with a federal AGI of more than $50,000 and married taxpayers filing jointly with federal AGI of more than $60,000 will have to pay on a portion of their benefit checks.
State income tax ranges from 3-6.7 percent and the state sales tax is 6.35 percent, but if you’re into certain luxury items, you could be paying 7 percent instead.
Real estate taxes here are the 10th highest in the country, and median tax on a median-valued home of $291,200 will set you back $4,738. Towns or taxing districts are the ones that assess the taxes, and to catch a break you’ll have to be part of a married couple 65 or older with an income of $39,500 or less; then you’re eligible for a property tax credit of up to $1,250.
Estates valued at $2 million or more are taxed progressively; rates range from 7.2-12 percent. Surviving spouses are exempt, and there is no inheritance tax.
You might almost as well call it the Land of 10,000 Taxes. Another state that treats Social Security income the same way the federal government does, Minnesota taxes pensions, too — not even the military catch a break here. Tax rates range from 5.35-9.85 percent, with that last a new tax rate added in 2013 just for those whose taxable income is more than $150,000 for single filers and more than $250,000 for joint filers.
State sales tax is 6.875 percent, with a few cities and counties adding their own on top. At least food, clothing and prescription and nonprescription drugs are exempt — but that’s from the state sales tax only.
Property taxes aren’t quite so bad here, with a median-valued home of $200,400 being taxed at a median $2,098. Those whose taxes are high compared with income might be able to qualify for a state-paid refund, regardless of age.
While estates more than $1.2 million are taxed at a maximum rate of 16 percent (surviving spouses are exempt), the state’s estate tax threshold will increase by $200,000 annually until it hits $2 million in 2018. There is no inheritance tax. In addition, while the state had passed a gift tax in 2013, it was repealed in March after having been in effect for less than a year.
One of the highest income tax rates in the country could keep you beavering away at looking for deductions or loopholes. Income is taxed at 5-9.9 percent (that last rate for taxable income of $125,000, $250,000 for married couples filing jointly). Social Security benefits aren’t taxes here, but most other retirement income is, and then there’s the combined federal and state capital gains tax — at 31 percent, the third-highest in the country.
Fortunately, there’s no sales tax. And, to be fair, Oregon allows residents to subtract their current year’s federal tax liability, after credits, up to $6,250, depending on income and filing status. And there’s a retirement-income credit for seniors, subject to certain income restrictions.
Counties in Oregon set property tax rates, and on a median home of $257,400, the median tax rate is $2,241. Homeowners 62 or older with income up to $42,000 in 2014 can defer property taxes, but not avoid them. When they sell, no longer live there permanently or die, those taxes will come due.