Great information to campaign with, especially in conjuction iwth our previous post.
Kiplinger:
Where’s the best state for you to retire? Here’s a good place to start your search: These ten impose the lowest taxes on retirees in the contiguous U.S., according to our research. All these retiree tax heavens exempt Social Security benefits from state income taxes. Many of them exclude government and military pensions from income taxes, too, or offer blanket exclusions up to a specific dollar amount for a wide variety of retirement income.
Although relocating to an income-tax-free state such as Florida or Texas may sound appealing, sometimes the best retirement destination is a state that imposes an income tax but offers generous exemptions for retirement income.
Once you narrow your search to a few key states, zero in on local taxes. Municipalities can impose hefty property taxes or other assessments, or they may layer local sales taxes on top of statewide levies. Federal taxes? If you claim the standard deduction, they’ll be the same no matter where you live. But if you itemize your deductions, you’ll be able to write off real estate taxes and state income taxes, reducing your federal tax bill and easing some of the pain.
# 1 Wyoming
State Income Tax: None
State Sales Tax: 4%
Estate Tax/Inheritance Tax: No/No
Thanks to the abundant revenues that Wyoming collects from oil and mineral companies, its residents have one of the lowest tax burdens in the nation, according to the Tax Foundation, a nonprofit research group in Washington, D.C. There is no state income tax. The state sales tax is 4%, and counties in the Equality State can only add up to 1% in additional levies — a very low ceiling. Plus, prescription drugs and groceries are exempt from state sales taxes. For most property, only 9.5% of market value is subject to tax, so a home worth $100,000 is taxed on $9,500 of assessed value.
#2 Mississippi
State Income Tax: 3%-5%
State Sales Tax: 7%
Estate Tax/Inheritance Tax: No/No
Mississippi offers a sweet income-tax deal for retirees. It not only exempts Social Security benefits from state income taxes but also excludes all qualified retirement income — including pensions, annuities, and IRA and 401(k) distributions. Remaining income is taxed at a maximum 5%. In addition, the Magnolia State is home to some of the lowest property taxes in the nation. Residential property is taxed at 10% of assessed value, and seniors qualify for a homestead exemption on the first $75,000 of value. The statewide sales tax is 7%, and counties and cities may add up to 3% to the state rate. But prescription drugs and health care services are exempt.
#3 Pennsylvania
State Income Tax: Flat rate of 3.07%
State Sales Tax: 6%
Estate Tax/Inheritance Tax: Yes/Yes
True to its Quaker roots, Pennsylvania extends a friendly hand to retirees. It offers unusually generous exclusions from state income tax on a wide variety of retirement income. Pennsylvania does not tax Social Security benefits or any type of public or private pensions. Nor does it nick distributions from 401(k)s, IRAs, deferred-compensation plans or other retirement accounts. Remaining income is taxed at a low, flat rate of 3.07%. Food, clothing and medicine are exempt from state sales taxes. Property taxes can be high in the Keystone State, especially near larger cities, but rates vary widely. One caveat for the wealthy: Your heirs won’t get off so easily. Pennsylvania is one of the few states to have both an inheritance tax, paid by the heirs, and an estate tax — though it applies only when an estate is large enough to trigger federal estate taxes ($5 million or more).
#4 Kentucky
State Income Tax: 2%-6%
State Sales Tax: 6%
Estate Tax/Inheritance Tax: No/Yes
The home of the Kentucky Derby is a good bet for retirees. It exempts Social Security benefits from state income taxes, and it allows residents to exclude up to $41,110 per person in retirement income from a wide variety of sources, including public and private pensions and annuities. Personal income-tax rates range from 2% to 6%. A 6% sales tax is imposed at the state level only. Homeowners 65 and older qualify for a homestead provision that exempts part of the value of their property from state taxes. The Bluegrass State has an inheritance tax, but immediate family members are exempt.
#5 Alabama
State Income Tax: 2%-5%
State Sales Tax: 4%
Estate Tax/Inheritance Tax: No/No
Alabama is a tax haven for retirees. Social Security benefits, as well as military, public and private defined-benefit pensions, are excluded from state income taxes. Remaining income is taxed at the state’s low rates, which range from 2% to 5%. Alabama also has some of the lowest property taxes in the U.S. Homeowners 65 and older are exempt from state property taxes, but some cities assess their own property tax. The only downside is sales taxes. Although the statewide rate is just 4%, cities and counties in the Yellowhammer State can impose their own levies, and together the taxes can add up to a whopping 10% or more in some cities. Food is taxed, but prescription drugs are not.
#6 Georgia
State Income Tax: 1%-6%
State Sales Tax: 4%
Estate Tax/Inheritance Tax: No/No
Georgia offers a peachy tax environment for retirees. Social Security income is exempt from taxes and so is up to $35,000 per person of most types of retirement income, including pensions, annuities, rental income, interest, dividends and capital gains for residents 62 and older. Beginning in 2012, taxes on all retirement income will be phased out completely. Remaining income is taxed at rates ranging from 1% to 6%, with the top tax rate kicking in on income in excess of $7,000. The statewide sales tax is 4%, but local jurisdictions can add up to 4% of their own taxes. Food and prescription drugs are exempt from sales taxes. Full-time residents of the Peach State qualify for a homestead exemption, and residents 65 and older may qualify for additional property tax deductions.
#7 Oklahoma
State Income Tax: 0.5%-5.5%
State Sales Tax: 4.5%
Estate Tax/Inheritance Tax: No/No
Oklahoma is more than OK for retirees. The Sooner State has been attracting newcomers since its days when settlers could claim 160 acres of public lands free. It does not tax Social Security benefits or the federal pensions of those who do not participate in the Social Security system. In addition, all residents can exclude up to $10,000 per person ($20,000 per couple) of other types of retirement income (previous income limits for claiming this exclusion were eliminated in 2010). Income-tax rates are low, ranging from 0.5% to 5.5%. Real estate is assessed at an amount between 11% and 13.5% of market value. The statewide sales tax is a modest 4.5%, with prescription drugs exempt. One thing to watch out for: Cities, towns and counties may levy additional sales taxes, which can make the combined sales tax rate top 8%.
#8 South Carolina
State Income Tax: 3%-7%
State Sales Tax: 6%
Estate Tax/Inheritance Tax: No/No
South Carolina extends its Southern hospitality to retirees. The Palmetto State exempts Social Security benefits from state income taxes, and it allows residents 65 and older to deduct up to $15,000 per person ($30,000 per couple) of qualified retirement income when calculating their state income tax. Retired military personnel 65 and older can deduct up to $10,000 of military retirement benefits. Property taxes are very low. Taxes are based on 4% of the market value of a home, and homeowners 65 and older qualify for a homestead exemption that excludes the first $50,000 of their property’s fair market value from property taxes. Sales taxes can be high, though. The statewide rate is 6%, and counties can levy an additional 2%. Prescription drugs are exempt.
#9 Delaware
State Income Tax: 2.2%-6.95%
State Sales Tax: None
Estate Tax/Inheritance Tax: Yes/No
The First State is number one with many retirees, thanks to low real estate taxes, modest income taxes and no sales tax. Social Security and Railroad Retirement benefits are exempt from income taxes, and residents 60 and older can exclude $12,500 per person of investment and qualified retirement income, including out-of-state pensions, dividends, interest and capital gains. Income-tax rates on remaining income range from 2.2% to 6.95%. The top tax rate kicks in when taxable income exceeds $60,000. Residents 65 and older who do not itemize their deductions are eligible for an additional standard deduction of $2,500. Real estate taxes vary by county but are generally low. Residents 65 and older can get a credit equal to half of the school property taxes, up to $500.
#10 Louisiana
State Income Tax: 2%-6%
State Sales Tax: 6%
Estate Tax/Inheritance Tax: No/Yes
Louisiana offers a bayou full of tax breaks to retirees. Social Security and military, civil-service, and state- and local-government pensions are exempt from state income taxes, plus up to $6,000 per person of pension and annuity income. Personal income tax rates are low, ranging from 2% to 6%. Property taxes are the lowest in the nation, according to the Tax Foundation, and assessments are based on 10% of the fair market value. But sales taxes can be steep. The statewide sales tax is 4%, but local parishes and jurisdictions within those parishes can add their own sales taxes. In New Orleans, the combined sales tax rate is 9%. But food and drugs are exempt from sales taxes throughout the Pelican State.