15. Massachusetts

Massachusetts
Matthew Botelho / Shutterstock

Tax on retirement income: Yes

State income tax: 5% flat rate

Average property tax: 1.15% of home value

Average state and local sales tax: 6.25%

Massachusetts does not tax Social Security benefits or government pension income, but most other retirement income is taxed at a flat rate of 5%.

The Bay State has the 18th-highest average property tax rate in the country, with owners of a $350,000 house paying roughly $4,025 in tax per year.

Fortunately, residents over the age of 65 who earn less than a certain amount (for the 2020 tax year, that’s $61,000 for individuals and $92,000 for married couples who file jointly) are eligible for a property tax credit of up to $1,150.

Massachusetts also has an estate tax — a tax on the fair market value of your assets after you die — ranging from 0.8% to 16% on estates worth over $1 million. This $1 million threshold is tied with Oregon for the lowest in the country.

However, property left to a surviving spouse is exempt from Massachusetts’ estate tax, as is property left to a qualified charity.

14. Ohio

Ohio
f11photo / Shutterstock

Tax on retirement income: Yes

State income tax: 0% to 4.797% (highest rate applies to incomes over $217,400)

Average property tax: 1.62% of home value

Average state and local sales tax: 7.17%

The Buckeye State does not tax Social Security benefits, although income from most other retirement accounts is taxed as regular income.

Seniors ages 65 or older can claim a retirement income credit of up to $200 per year on sources of income other than their Social Security, as well as a senior citizen tax credit of $50.

Ohio’s property taxes are the ninth-highest in the country; the owner of a $350,000 house will have to fork over around $5,670 per year.

On the plus side, seniors who earn less than a certain amount ($33,600 during the 2020 tax year) may qualify for the homestead exemption, which exempts up to $25,000 of their home’s market value from all local property taxes.

Although Ohio does not charge any estate or inheritance taxes, the combined state and local sales tax is higher than average.

Calculate how much more you need to save each month to reach your retirement nest egg goal.

13. Maryland

Maryland
Hunter Herrman / Shutterstock

Tax on retirement income: Yes

State income tax: 2% to 5.75% (highest rate applies to incomes over $250,000)

Average property tax: 1.04% of home value

Average state and local sales tax: 6.00%

Although Maryland is known as the Free State, don’t expect much in the way of freebies if you’re planning to retire there.

While Social Security benefits are not subject to state income tax, most other forms of retirement income are.

On the bright side, though, residents who are age 65 or older may qualify for an exclusion of up to $31,100 on distributions from 401(k), 403(b), and 457 plans and income from public and private pensions.

In addition to a state income tax of 2% to 5.75%, Maryland’s 23 counties and Baltimore City also levy local income taxes ranging between 2.5% and 3.2% of residents’ taxable income.

Property taxes in Maryland are also fairly high, with the owner of a $350,000 home paying around $3,640 a year.

Maryland is the only state in the country to charge both an estate tax and an inheritance tax. An inheritance tax is similar to an estate tax, only instead of the estate paying taxes on a deceased person’s assets, the people inheriting the assets are on the hook for the amount due.

The estate tax in Maryland ranges from 0.8% to 16% on estates valued at more than $5 million, and the inheritance tax is 10%, although property passed down to children, spouses and other blood relatives is exempt.

12. Maine

Maine
Arlene Waller / Shutterstock

Tax on retirement income: Yes

State income tax: 5.80% to 7.15% (highest rate applying to incomes over $52,600)

Average property tax: 1.27% of home value

Average state and local sales tax: 5.50%

Retiring in the Pine Tree State is not all bad: Maine doesn’t tax Social Security benefits, and retirees can deduct up to $10,000 of eligible pension income.

However, all other forms of retirement income are subject to state income tax rates as high as 7.15%, with the highest rate applying to anyone with an income of more than $52,600.

Maine’s property taxes are also pricey, with the average amount on a $350,000 home running around $4,445 per year.

On top of that, Maine charges an estate tax ranging from 8% to 12% on estates valued above $5.7 million.

Fortunately, the sales tax in the state is lower than average, and Maine does not allow cities or towns to impose any local sales tax. As a result, Maine has one of the least expensive combined sales and local tax rates in the country.

11. California

California
Lucky-photographer / Shutterstock

Tax on retirement income: Yes

State income tax: 1% to 13.30% (highest rate applies to incomes over $1,000,000)

Average property tax: 0.74% of home value

Average state and local sales tax: 8.66%

Let’s start with some good news: If you’re planning to retire in the Golden State, your Social Security benefits are exempt from state income taxes.

Unfortunately, all of your other retirement income is fully taxable, and at the highest tax rate in the country if you earn more than $1 million a year (if that’s the case, well done).

Another bright spot for retirees is that the average property tax rate in California is quite low; on a home worth $350,000 you’ll only pay around $2,590.

And as an added perk, homeowners aged 62 or older with an annual income of less than $45,000 and at least 40% equity in their homes have the option to defer payment on their property taxes for the current year.

However, it’s worth noting that California has the highest state sales tax in the country at 7.25%, and the cost of living is 18% higher than the national average.

10. New York

New York
Ingus Kruklitis / Shutterstock

Tax on retirement income: Yes, but deductible up to $20,000

State income tax: 4% to 8.82% (highest rate applies to incomes over $1,077,550)

Average property tax: 1.40% of home value

Average state and local sales tax: 8.52%

New York has the 14th-highest property tax rate in the country, with the average taxes on a $350,000 house costing around $4,900.

The good news is that tax breaks are available for seniors at the local level. Local governments and school districts have the option to reduce the assessed value of a senior’s home by up to 50%, depending on the senior’s income.

Some seniors may also qualify for a School Tax Relief (STAR) exemption, in which the first $66,800 of their home value is exempt from school property taxes. In order to be eligible, you’ll need to be at least 65 years of age and have had an annual household income below a certain threshold ($86,300 or less during the 2019-2020 school year).

In addition to property taxes, retired New Yorkers also have to consider the combined state and local sales tax, which is the 10th-highest in the country, as well as an estate tax of 3.06% to 16% on estates worth $5.9 million or more.

Social Security benefits and military pensions are exempt from state taxes in New York, although you’ll be taxed on any retirement income over $20,000 from private retirement plans or out-of-state government plans.

9. Illinois

Illinois
f11photo / Shutterstock

Tax on retirement income: No

State income tax: 4.95% flat rate

Average property tax: 2.05% of home value

Average state and local sales tax: 9.08%

Retirees planning to settle down in the Land of Lincoln had better start saving their pennies, because Illinois has the second-highest average property tax rate in the country.

An owner of a $350,000 house pays roughly $7,175 a year in property taxes, although some seniors in Illinois may qualify for a homestead exemption of up to $8,000, depending on which part of the state they live in.

Additionally, Illinois offers qualified seniors the option to freeze their home’s assessed value under the Senior Citizens Assessment Freeze Homestead Exemption and defer up to $5,000 of their property tax payments under the Senior Citizens Real Estate Tax Deferral Program.

Aside from the high property taxes, Illinois residents are also subject to the sixth-highest combined state and local sales tax in the U.S., as well as an estate tax ranging from 0.8% to 16% on estates above $4 million.

On the bright side, the state’s flat 4.95% income tax rate is quite low, and income from most retirement plans — including Social Security benefits — is exempt from state taxes.

8. New Jersey

New Jersey
Mia2you / Shutterstock

Tax on retirement income: Yes, but minimal below $60,000

State income tax: 1.40% to 10.75% (highest rate applies to incomes over $5 million)

Average property tax: 2.21%

Average state and local sales tax: 6.60%

For retirees in the Garden State, property taxes are the biggest weed in the flower bed.

New Jersey has the highest average property tax rate in the country. The owner of a $350,000 home has to shell out around $7,735 each year.

Thankfully, New Jersey provides some relief for retirees through its Senior Freeze program, which reimburses eligible seniors for property tax increases.

In order to qualify, you’ll need to be 65 or older, have been a resident of New Jersey for at least 10 years, have owned and lived in your current home for at least five years and earn less than a certain amount ($91,505 or less in 2019).

Additionally, senior citizens with an annual household income of $10,000 or less qualify for a property tax deduction of $250.

On top of these exemptions, New Jersey also offers solid state tax exemptions on retirement income.

Social Security benefits are not taxed, and single taxpayers can exclude up to $75,000 of income from a retirement plan if their income is $100,000 or less. (Married seniors filing jointly can exclude up to $100,000.)

Although New Jersey eliminated its estate tax in 2018, it still charges an inheritance tax of 11% to 16% on inherited property worth $500 or more.

7. Rhode Island

Rhode Island
Michael Sean OLeary / Shutterstock

Tax on retirement income: Yes

State income tax: 3.75% to 5.99% (highest rate applies to incomes over $148,350)

Average property tax: 1.53% of home value

Average state and local sales tax: 7.00%

Rhode Island may offer scenic views of the Atlantic, but you can expect to be hit with a tidal wave of taxation if you decide to retire in the Ocean State.

All retirement income is fully taxable, including Social Security benefits, as long as it is also taxed federally.

However, residents earning a certain amount or less ($85,150 for individuals and $106,400 for joint filers in 2019) are exempt from paying state tax on their Social Security benefits.

Additionally, seniors earning less than $83,450 ($104,350 for couples) are eligible for an exemption of up to $15,000 on payouts from private, government or military retirement plans.

Property taxes in Rhode Island are the 10th-highest in the country and work out to an average of $5,355 per year on a home worth $350,000, although homeowners aged 65 or older whose income is $30,000 or less are eligible for a state tax credit.

Rhode Island also has an estate tax ranging from 0.8% to 16% on estates worth more than $1.6 million, making it one of only a few states that tax estates valued at under $2 million.

6. Vermont

Vermont
Songquan Deng / Shutterstock

Tax on retirement income: Yes

State income tax: 3.35% to 8.75% (highest rate applies to incomes over $204,000)

Average property tax: 1.80% of home value

Average state and local sales tax: 6.22%

If you retire in Vermont, the government will tap your income just like one of the state’s maple trees.

The Green Mountain State taxes all forms of retirement income at rates between 3.35% and 8.75%, and that includes Social Security benefits.

However, individuals who earn an adjusted gross income of $45,000 or less, and joint-filing couples who earn $60,000 or less, are eligible for full exemptions from state Social Security tax.

Property taxes are also quite pricey, with the average tax on a $350,000 house coming to around $6,300.

Fortunately, some retired homeowners may qualify for Vermont’s Elderly and Permanently Disabled Tax Credit, which is worth 24% of the federal credit for elderly and permanently disabled individuals.

Vermont also charges a flat 16% estate tax on any estate that exceeds $2.8 million in value.

5. Minnesota

Minnesota
Mitch Boeck / Shutterstock

Tax on retirement income: Yes

State income tax: 5.35% to 9.85% (highest rate applies to incomes over $164,401)

Average property tax: 1.44%

Average state and local sales tax: 7.46%

Minnesota taxes all forms of retirement income — including Social Security benefits — with the exception of military pensions.

However, thanks to the North Star State’s progressive tax system, households earning less than $23,900 are exempt from paying state taxes on their Social Security benefits.

Property taxes in Minnesota are the 13th highest in the country, with owners of a $350,000 home paying around $5,040 a year.

The good news is that the state offers a Senior Citizen Property Tax Deferral Program, which allows residents aged 65 or older with a household income of $60,000 or less to defer a portion of their property tax, as long as they’ve owned their home for at least 15 years.

The state also offers a special income tax deduction for seniors who make $61,080 or less, or $78,180 or less for couples who file jointly. Single filers can deduct up to $4,020, and joint filers can deduct up to $5,150.

Minnesota residents are subject to an estate tax of 13% to 16% on estates valued at more than $3 million, although assets left to a surviving spouse are exempt.

4. Wisconsin

Wisconsin
MarynaG / Shutterstock

Tax on retirement benefits: Yes

State income tax: 4% to 7.65% (highest rate applies to incomes over $263,480)

Average property tax: 1.73% of home value

Average state and local sales tax: 5.46%

Although all Social Security benefits and income from government pensions are exempt from state taxes in Wisconsin, any other retirement income is fully taxable at rates ranging from 3.86% to 7.65%.

As a small concession, retirees who are 65 or older and have an adjusted gross income of less than $15,000 — or $30,000 for married couples filing jointly — can deduct up to $5,000 of their retirement income from their state taxes.

The Badger State does not have any estate or inheritance taxes, but property taxes are quite steep — the fifth highest in the country.

The average property tax on a house valued at $350,000 is $6,055, and there are no special exemptions available for low-income seniors.

The state is much less punishing at the cash register, though. Wisconsin has one of the lowest combined state and local sales tax rates in the country.

3. Kansas

Kansas
Ricardo Reitmeyer / Shutterstock

Tax on retirement benefits: Yes

State income tax: 3.10% to 5.70% (highest rate applies to incomes over $30,000)

Average property tax: 1.33%

Average state and local sales tax: 8.68%

A ray of sunshine for anyone hoping to retire in the Sunflower State is that all Social Security income and in-state public pension income is exempt from state taxes for seniors earning an adjusted gross income of $75,000 or less. Military and federal government pensions are also exempt.

Unfortunately, income from private retirement plans like IRAs and 401(k)s is fully taxed, and so is income from out-of-state public pensions.

Kansas also has the eighth-highest average state and local sales tax, which means that shopping for essentials can be pricey.

The state’s property taxes are also on the expensive side, with the average tax on a $350,000 home coming to $4,655.

However, the state offers property tax relief for low-income seniors in the form of a refund for up to 75% of property taxes paid. This refund is available to homeowners aged 65 or older who have a household income below a certain threshold ($20,300 or less in 2019).

2. Connecticut

Connecticut
Allan Wood Photography / Shutterstock

Tax on retirement income: Yes

State income tax: 3% to 6.99% (highest rate applies to incomes over $500,000)

Average property tax: 1.70% of home value

Average state and local sales tax: 6.35%

Anyone planning to commit to the Constitution State will have to contend with some serious taxes on their income. All types of retirement income are subject to Connecticut’s income tax, although there are a few exemptions.

Retired Connecticuters with a federal adjusted gross income of $75,000 or more — $100,000 for joint filers — will have 25% of any Social Security benefits taxed at the federal level taxed by the state as well. Anyone whose income levels are below those thresholds is exempt from paying tax on their Social Security benefits.

As of 2019, residents below those income thresholds are also exempt from paying tax on 14% of any income from a pension or annuity, and this exemption percentage will increase by 14% each year until the 2025 tax year, when it reaches 100%.

Connecticut currently has the seventh-highest property tax rate in the country — the owner of a $350,000 home can expect to pay about $5,950. However, the state gives property tax credits to homeowners aged 65 or older with a total income of $36,000 or less ($43,900 or less for couples).

Connecticut imposes an estate tax of between 7.2% and 12% on estates valued at $5.1 million or more. It’s also the only state in the union that imposes its own gift tax — a tax on assets you give away while you’re still alive — that can reach rates as high as 12%.

1. Nebraska

Nebraska
Matthew Menard / Shutterstock

Tax on retirement benefits: Yes

State income tax: 2.46% to 6.84% (highest rate applies to incomes over $31,750)

Average property tax: 1.65% of home value

Average state and local sales tax: 6.39%

The prize for the least tax-friendly state for retirees goes to Nebraska, which not only taxes retirement income — including some Social Security benefits — but also imposes high property taxes.

Any Social Security income that is taxed federally will also get hit with Nebraska state income tax, while IRA withdrawals, 401(k) funds and pensions are all fully taxable.

Residents of the Cornhusker State are also subject to an inheritance tax that ranges from 1% to 18%.

While the inheritance tax for immediate relatives is only 1% on property valued at $40,000 or more, remote relatives will have to fork over 15% on anything worth over $15,000, and all other heirs are subject to the full 18% on anything valued at $10,000 or more.

And if all that wasn’t enough of a financial burden, Nebraska also has the eighth-highest property tax in the country. On a home valued at $350,000, the average property tax would be $5,775.

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About the Author

Shane Murphy

Shane Murphy

Reporter

Shane is a reporter for MoneyWise. He holds a bachelor’s degree in English Language & Literature from Western University and is a graduate of the Algonquin College Scriptwriting program.

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