By Sandra Block, Kiplinger
The Tax Cuts and Jobs Act raised the federal exemption from estate taxes to $11.2 million per person, or $22.4 million for a married couple, so the vast majority of taxpayers won't have to worry about federal estate taxes. However, if your goal is to leave as much as you can to your heirs, then you should also pay attention to the state you choose for retirement.
Twelve states and the District of Columbia levy their own estate taxes, sometimes called death taxes, and some have much lower thresholds than Uncle Sam. In addition, six states have inheritance taxes. Maryland, whose nickname is the Free State, has both.
Alabama
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: 4% state levy. Localities can add as much as 7% to that, and the average combined rate is 9.15%, according to the Tax Foundation. Alabama is one of the few states that does not exempt food from sales tax.
State Income Tax Range: Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others); High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others). Alabama also allows residents to deduct all of their federal income tax from state taxable income.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Alabama’s median home value of $128,500 is $550.
Alaska
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: Alaska is one of five states with no state sales tax. However, localities can levy sales taxes, which can go as high as 7.5%. But, according to the Tax Foundation, the statewide average is only 1.43%.
State Income Tax Range: No state income tax.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Alaska’s median home value of $257,100 is $3,048. Property taxes are usually levied in larger municipalities. Smaller jurisdictions tend to rely on sales taxes instead.
Arizona
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: 5.6% state levy. Localities can add as much as 5.3% to that, but the average combined levy is 8.33%, according to the Tax Foundation. Many cities in Arizona levy a tax on food for home consumption; Phoenix and Mesa are notable exceptions.
State Income Tax Range: Low: 2.59% (on up to $20,690 of taxable income for married joint filers and up to $10,346 for all others); High: 4.54% (on more than $310,317 of taxable income for married joint filers and more than $155,159 for all others)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Arizona’s median home value of $167,500 is $1,356.
Arkansas
Overall Rating for Taxes on Retirees: Not tax-friendly
State Sales Tax: 6.5% state levy. Localities can add as much as 5.125%, and the average combined rate is 9.42%, according to the Tax Foundation. The state taxes food at 1.5%, and localities can add to that.
State Income Tax Range: Low: 0.9% (on up to $4,299 of taxable income); High: 6.9% (on more than $35,100 of taxable income, if your total income exceeds $75,000)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Arkansas’ median home value of $114,700 is $721.
California
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: 7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.55%, according to the Tax Foundation.
State Income Tax Range: Low: 1% (on up to $16,446 of taxable income for married joint filers and up to $8,223 for those filing individually); High: 13.3% (on more than $1,145,960 for married joint filers and $1 million for those filing individually)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on California’s median home value of $409,300 is $3,237.
Colorado
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: 2.9% state levy. Localities can add as much as 8.3%, and the average combined rate is 7.52%, according to the Tax Foundation.
State Income Tax Range: All Colorado residents who have federal taxable income pay a flat rate of 4.63%. Taxpayers are also subject to a state alternative minimum tax.
State Taxes on Social Security: For beneficiaries younger than 65, up to $20,000 of Social Security benefits can be excluded, along with other retirement income. Those 65 and older can exclude benefits and other retirement income up to $24,000. Also, Social Security income not taxed by the federal government is not added back to adjusted gross income for state income tax purposes.
Property Taxes: The median property tax on Colorado’s median home value of $264,600 is $1,516.
Delaware
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: Neither the state nor localities impose a sales tax.
State Income Tax Range: Low: 2.2% (on taxable income from $2,001 to $5,000); High: 6.6% (on taxable income above $60,000).
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Delaware’s median home value of $233,100 is $1,274.
Florida
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: 6% state levy. Localities can add as much as 2%, and the average combined rate is 6.8%, according to the Tax Foundation.
State Income Tax Range: There is no state income tax.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Florida’s median home value of $166,800 is $1,702.
Georgia
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: 4% state levy. Localities can add as much as 4.9%, and the average combined rate is 7.23%, according to the Tax Foundation. While the state doesn’t tax grocery food sales, localities can.
State Income Tax Range: Low: 1% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately); High: 6% (on taxable income over $10,000 for married couples filing jointly; on taxable income over $7,000 for individual filers; and on taxable income over $5,000 for married couples filing separately)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Georgia’s median home value of $152,400 is $1,413.
Idaho
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: 6.0% state levy. Localities (typically resort communities) can add as much as 3%, but the effect on the state average is negible: It’s 6.03%, as calculated by the Tax Foundation. Food is taxable, but the state attempts to offset the levy with a $100 per-person tax credit. Seniors can get $120.
State Income Tax Range: Low: 1.6% (on taxable income up to $3,008 for married joint filers and up to $1,504 for individual filers); High: 7.4% (on taxable income of $22,558 or more for married joint filers and $11,279 or more for individual filers)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Idaho’s median home value of $167,900 is $1,276.
Indiana
Overall Rating for Taxes on Retirees: Least tax-friendly
State Sales Tax: State levy of 7%.
State Income Tax Range: The Hoosier State taxes income at a flat rate of 3.23%, but counties levy their own income taxes, at rates ranging from 0.2% (Vermillion County) to 3.38% (Pulaski County).
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Indiana’s median home value of $126,500 is $1,100.
Kansas
Overall Rating for Taxes on Retirees: Least tax-friendly
State Sales Tax: 6.5% state levy. Localities can add as much as 4%, and the average combined rate is 8.68%, according to the Tax Foundation. These rates apply to groceries as well. A food sales tax credit of $125 per person is available to seniors and those claiming dependents, but income limitations apply.
State Income Tax Range: Low: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers); High: 6% (on more than $50,000 of taxable income; $100,000 for joint filers).
State Taxes on Social Security: Social Security benefits are exempt from Kansas income tax for residents with a federal adjusted gross income of $75,000 or less.
Property Taxes: The median property tax on Kansas’ median home value of $135,300 is $1,890.
Louisiana
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: 5.0% state levy. Localities can add as much as 7%, and the average combined rate is 9.45%, according to the Tax Foundation. Groceries and prescription drugs are exempt from the state’s sales tax, but localities may tax these.
State Income Tax Range: Low: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers); High: 6% (on more than $50,000 of taxable income; $100,000 for joint filers).
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Louisiana’s median home value of $148,300 is $750.
Michigan
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: State levy of 6%.
State Income Tax Range: Michigan has a flat tax rate of 4.25%. Cities can levy income taxes as well, on both residents and non-residents (who are taxed 1/2 the rate of residents). In Detroit, the resident rate is 2.4%; the state average is 1.70%, according to the Tax Foundation.
State Taxes on Social Security: Social Security benefits are not taxed in Michigan.
Property Taxes: The median property tax on Michigan’s median home value of $122,400 is $2,174.
Mississippi
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: 7% state levy. Only two localties, Jackson (1%) and Tupelo (0.25%) add to that, making the average combined rate is 7.07%, according to the Tax Foundation. Groceries are fully taxable.
State Income Tax Range: Low: 3% (on less than $5,000 of taxable income); High: 5% (on more than $10,000 of taxable income)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Mississippi’s median home value of $105,700 is $841.
Missouri
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: 4.225% state levy. Localities can add as much as 5.39%, and the average combined rate is 8.03%, according to the Tax Foundation. Food that qualifies for the federal supplemental nutrition assistance program (SNAP) and is intended for home consumption is taxed at 1.225%; local tax is also due.
State Income Tax Range: Low: 1.5% (on more than $103 of taxable income); High: 5.9% (on more than $9,253 of taxable income).
State Taxes on Social Security: Social Security benefits are not taxed for single taxpayers with adjusted gross income of less than $85,000 and married couples with AGI of less than $100,000. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits.
Property Taxes: The median property tax on Missouri’s median home value of $141,200 is $1,408.
Montana
Overall Rating for Taxes on Retirees: Not tax-friendly
State Sales Tax: No sales tax. Resort areas such as Big Sky, Red Lodge and West Yellowstone have local sales taxes.
State Income Tax Range: Low: 1% (on up to $3,000 of taxable income); High: 6.9% (on taxable income over $17,900). Montana permits filers to deduct some of their federal income tax.
State Taxes on Social Security: Social Security benefits are taxable. The taxable amount may be different from the federally taxable amount because Montana taxes some types of income that the federal government does not, and vice versa.
Property Taxes: The median property tax on Montana’s median home value of $199,700 is $1,698.
Nevada
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: 6.85% state levy. Localities can add as much as 1.42%, and the average combined rate is 8.14%, according to the Tax Foundation.
State Income Tax Range: There’s no state income tax in the Silver State.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Nevada’s median home value of $191,600 is $1,478.
New Hampshire
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: No sales tax.
State Income Tax Range: New Hampshire doesn’t have an income tax. But there’s a 5% tax on dividends and interest in excess of $2,400 for individuals ($4,800 for joint filers). A $1,200 exemption is available for residents 65 or older.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on New Hampshire’s median home value of $239,700 is $5,241.
New Mexico
Overall Rating for Taxes on Retirees: Least tax-friendly
State Sales Tax: 5.125% state levy. Localities can add as much as 4.13%, and the average combined rate is 7.78%, according to the Tax Foundation. New Mexico’s tax is a gross receipts tax that covers most services.
State Income Tax Range: Low: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers); High: 4.9% (on taxable income over $16,000 for single filers and over $24,000 for married couples filing jointly)
State Taxes on Social Security: Benefits are taxed. But Social Security income can be included as part of an overall retirement-income exemption of up to $8,000 per person, subject to income restrictions.
Property Taxes: The median property tax on New Mexico’s median home value of $161,600 is $1,232.
North Carolina
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: 4.75% state levy. Localities can add as much as 2.75%, and the average combined rate is 6.95%, according to the Tax Foundation. Groceries are not taxed by the state, but a 2% local tax is levied.
State Income Tax Range: North Carolina has a flat tax rate of 5.49%.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on North Carolina’s median home value of $157,100 is $1,345.
North Dakota
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: 5% state levy. Localities can add as much as 3.5%, and the average combined rate is 6.83%, according to the Tax Foundation. “New farm machinery, new farm machinery attachments or new irrigation equipment [used] exclusively for agricultural purposes” is taxed by the state at 3%. Local taxes may still apply.
State Income Tax Range: Low: 1.10% (on up to $38,700 of taxable income for singles and up to $64,650 for married couples filing jointly); High: 2.90% (on taxable income over $424,950)
State Taxes on Social Security: Benefits are taxed to the same extent as on the federal tax return.
Property Taxes: The median property tax on North Dakota’s median home value of $164,000 is $1,729.
Ohio
Overall Rating for Taxes on Retirees: Mixed tax picture
State Sales Tax: 5.75% state levy. Localities can add as much as 2.25%, and the average combined rate is 7.15%, according to the Tax Foundation.
State Income Tax Range: Low: 1.98% (on income over $10,650 of taxable income); High: 4.997% (on taxable income over $213,350). Municipalities can levy income taxes, too; the average local rate is 2.5%, per the Tax Foundation.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Ohio’s median home value of $131,900 is $2,064.
Oklahoma
Overall Rating for Taxes on Retirees: Not tax-friendly
State Sales Tax: 4.5% state levy. Localities can add as much as 6.5%, and the average combined rate is 8.93%, according to the Tax Foundation.
State Income Tax Range: Low: 0.5% (on up to $1,000 of taxable income for single filers and up to $2,000 for married joint filers); High: 5% (on taxable income over $7,200 for single filers and over $12,200 for married joint filers)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Oklahoma’s median home value of $121,300 is $1,076.
South Carolina
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: 6% state levy. Localities can add as much as 3%, and the average combined rate is 7.43%, according to the Tax Foundation.
State Income Tax Range: Low: 3% (on taxable income over $2,970); High: 7% (on taxable income over $14,860)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on South Carolina’s median home value of $143,600 is $821.
South Dakota
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: 4.5% state levy. Localities can add as much as 4.5%, and the average combined rate is 6.40%, according to the Tax Foundation. Many services are taxed, as are groceries.
State Taxes on Social Security: Benefits are not taxed.
State Income Tax Range: There’s no state income tax.
Property Taxes: The median property tax on South Dakota's median home value of $146,700 is $1,943.
Tennessee
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: 7% state levy. Localities can add up to 2.75%, with an average combined rate of 9.46%, according to the Tax Foundation. Groceries are taxed at 4% by the state, plus whatever local rate is in effect. Local taxes are limited, though: Only the first $1,600 of any item is taxable.
State Income Tax Range: There’s no state income tax, so salaries, wages, Social Security benefits, IRA distributions and pension income are not taxed. But Tennessee does have the Hall Tax, which taxes dividends and some interest at 3%. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. The rate is declining 1% a year and will be phased out entirely by 2021. The tax is waived completely if you’re over 100.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Tennessee’s median home value of $146,000 is $1,088.
Texas
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: 6.25% state levy. Localities can add up to 2%, with an average combined rate of 8.17%, according to the Tax Foundation.
State Income Tax Range: Texas has no state income tax.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Texas’ median home value of $142,700 is $2,654.
Utah
Overall Rating for Taxes on Retirees: Least tax-friendly
State Sales Tax: State levy is 5.95%, including a 2.15% tax that goes to local governments. Localities can add up to an additional 2.65% as well; the average combined rate is 6.78%, according to the Tax Foundation. Groceries are taxed at 3%.
State Income Tax Range: Utah has a flat tax of 5%.
State Taxes on Social Security: Social Security benefits are taxed. Benefits may qualify for the retirement-income tax credit described below.
Property Taxes: The median property tax on Utah’s median home value of $223,200 is $1,480.
Virginia
Overall Rating for Taxes on Retirees: Tax-friendly
State Sales Tax: 5.3% state levy, including 1% that is allocated to local governments. Northern Virginia and the Hampton Roads area have an additonal 0.7% sales tax to pay for transportation improvements, giving the state an average combined rate of 5.65%, according to the Tax Foundation. Groceries are taxed at 2.5% statewide.
State Income Tax Range: Low: 2% (on up to $3,000 of taxable income); High: 5.75% (on taxable income over $17,000)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Virginia’s median home value of $248,400 is $1,973.
West Virginia
Overall Rating for Taxes on Retirees: Not tax-friendly
State Sales Tax: 6% state levy. Municipalities can add up to 1% to that, with an average combined rate of 6.38%, according to the Tax Foundation.
State Income Tax Range: Low: 3% (on up to $10,000 of taxable income); High: 6.5% (on taxable income of $60,000 or more)
State Taxes on Social Security: Social Security benefits are taxed to the extent that benefits are taxed by the federal government.
Property Taxes: The median property tax on West Virginia’s median home value of $107,400 is $629.
Wisconsin
Overall Rating for Taxes on Retirees: Least tax-friendly
State Sales Tax: 5% state levy. Municipalities can add up to 1.75% to that, but in most locations the local rate is 0.5%, with the average combined rate at 5.44%, according to the Tax Foundation.
State Income Tax Range: Low: 4.0% (on up to $11,450 of taxable income for singles or up to $15,270 for married couples); High: 7.65% (on taxable income over $252,150 for singles or over $336,200 for married couples)
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Wisconsin’s median home value of $167,000 is $3,257.
Wyoming
Overall Rating for Taxes on Retirees: Most tax-friendly
State Sales Tax: 4.0% state levy. Localities can add as much as 2.0%, and the average combined rate is 5.39%, according to the Tax Foundation.
State Income Tax Range: Wyoming has no state income tax.
State Taxes on Social Security: Benefits are not taxed.
Property Taxes: The median property tax on Wyoming’s median home value of $199,900 is $1,223.
