After breaking down the 8 best states for retired taxpayers and the 7 states with tax quirks you MUST know before you settle there, I had to share what I believe are the most taxed states for retirees.
Property Tax Is Most Important
Now please be advised, my list revolves first and foremost on property tax. Property tax is one area that can not be controlled or planned for. It simply is what it is.
You live in a state with a 1% property tax and no homestead exemption you pay 1% of your home value to the state and/or county in property tax. Other than moving there is nothing you can do.
Sales Tax Is Next In Order of Importance
The second concern is sales tax. Sales tax can be dealt with a bit differently than property tax. You can go over the line to buy goods in a state with no sales tax for instance. You can grow you own food to avoid sales tax. Etc. So there are things you can do to minimize, if not outright avoid sales tax.
Income Tax Can Be Worked Around
Lastly, is income tax. Income tax is MUCH less prevalant for retirees than most people think. Without question it is a concern, but first priority needs to be focusing on the first two mentioned above.
Income tax can be worked around with smart planning techniques, maximizing Social Security, Roth conversions and asset location strategies too. But like most things, if you do nothing, you’ll probably pay more. So, proactive tax planning is a must.
The 10 Worst States For Retirees
In no particular order:
1. Connecticut – High income taxes. High property tax. High gas tax. Moderate sales tax, but groceries are not taxed. Income over $20k tax rate is 5%. Not much of a homestead exemption, have to have income below $43k to qualify. Connecticut has an estate tax too.
2. Vermont – High income tax, high property tax, sales tax is moderately low. Groceries are exempt. High gas tax. Income needs to be below $47k to qualify for homestead exemption. Social Security partially taxed.
3. Illinois – High sales tax. High gas tax. #2 highest property tax in the nation. But income tax not nearly as bad as some other states. Property tax is bad, real bad. Not much of a homestead exemption either
4. Wisconsin – 4th highest income tax. 4th highest property tax. Low sales tax though. Social Security not taxed. Gas tax is high. Taxable income over $30k and your marginal rate is a steep 6.27%. Basically no homestead exemption either.
5. Nebraska – Middle sales and gas tax. Groceries exempt. Property tax in top 10 and Social Security is taxed as well as all other retirement income. Taxable income over $60k puts you at the 6.84% bracket, which is steep. Not much homestead exemption.
6. Minnesota – Top 20 for income, sales and property tax. Social Security is partially taxed. Retirement income taxed. Not much of a homestead exemption. Taxable Income greater than $37k puts you in the very high 7.05% marginal rate.
7. Kansas – Sales tax #6 and property tax is the 15 highest. Social Security mainly exempt. Taxable Income greater than $60k puts you in the 5.7% marginal rate. No real homestead exemption.
8. Rhode Island -HIGH income tax… but just did recently add some nice exemptions as long as gross income is below $100k. High gas tax, high property tax, estate tax too. To get the homestead exemption you need income less than $30k. Sales tax not so high and groceries are exempt.
9. New Jersey – Highest property tax in the nation, by far. High income tax. Now high gas tax. Sales tax moderate and groceries are exempt.
10. New York – Maybe worst in the nation. High income tax. High property tax. High sales tax. Income greater than $23k puts you in a 5.25% bracket and quickly creeps up.