Retirement Planning, Elder Law, and Senior Finance Consider State Taxes in Retirement 7/5/2023 | By Joy Taylor Many people don’t consider the taxes that they could face in retirement, especially if they move to another state. State taxes in retirement can take a big bite out of a nest egg. Kiplinger has rated the states according to the taxes on middle-income retirees. How does your state rank? We’re talking not just about income taxes, but also estate and inheritance taxes, and sales and real property taxes. Federal taxes are generally the same wherever you live in the United States, but state taxes can vary greatly. So no matter where you plan to relocate in your golden years, or even if you choose to remain where you are, be sure to check out the taxes in that state. Kiplinger can help you out with a state-by-state guide to taxes on middle-income retirees to help you compare how each of the 50 states and D.C. tax retirees. Your state has one of five ratings: most tax-friendly, tax-friendly, mixed, not tax-friendly or least tax-friendly. Eight states don’t have an income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. New Hampshire doesn’t tax earned income, but it currently taxes dividends and interest in excess of $2,400 for single filers and $4,800 for joint filers. (That tax is slated to end after 2026.) Delaware, Montana, New Hampshire and Oregon don’t have a sales tax. Alaska doesn’t have a state sales tax, but its localities do impose sales taxes. Kiplinger has come up with the 10 most-friendly and 10 least-friendly states for taxes on middle-income retirees. The results might at first surprise you if you’re thinking only about the states with no income taxes. But that doesn’t paint the full state income tax picture for retirees. There are many states with state income taxes that exempt some retirement income. Additionally, Kiplinger’s guide and rankings account for other taxes, such as property taxes and sales taxes. These other taxes can add up quickly. Retirees think more than others about estate and inheritance taxes, so these are also included in the analysis. Each of the 10 most tax-friendly states don’t tax Social Security benefits paid to seniors, and most allow an exemption for at least a portion of private pensions and IRA withdrawals. These states also tend to have low property taxes and/or reasonable sales tax rates. Contrast this with the 10 states on the least tax-friendly list. Some have low income taxes but high property and/or sales taxes, or vice versa. Delaware tops the list as the most tax-friendly state for retirees. There’s no sales tax, no inheritance or estate tax, and its property taxes are low. The other tax-friendly states on the top 10 list, in alphabetical order, are Arizona, Colorado, Hawaii, Idaho, Nevada, South Carolina, Tennessee and Wyoming. It might surprise you that the District of Columbia also makes the list. You might be wondering, where are Florida and Texas? Florida, the quintessential retirement state, is listed as tax-friendly in the Kiplinger guide, but not most tax-friendly. Texas, on the other hand, is on the list of least tax-friendly states, mainly because of its heavy property tax and sales tax burdens. New Jersey is the least tax-friendly state for retirees, thanks largely to its property taxes on real estate. The nine other states on least tax-friendly list are Connecticut, Illinois, Iowa, Kansas, Nebraska, New York, Texas, Vermont and Wisconsin. Joy Taylor is editor of The Kiplinger Tax Letter. For more on this and similar money topics, visit Kiplinger.com. ©2023 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC. Read similar articles on Seniors Guide like this one: RMD Strategies for Older Retirees Read More Joy Taylor Joy Taylor is editor of The Kiplinger Tax Letter. For more on this and similar money topics, visit Kiplinger.com.