3. Rhode Island
Rhode Island taxes Social Security in the same way that federal law does and includes pension income fully. Rhode Island’s tax rates come in three different brackets of 3.75%, 4.75%, and 5.99%. Yet even though those rates are lower than Nebraska’s, a 7% sales tax and an average property-tax burden of nearly $2,100 are enough to make the overall impact on typical retirees somewhat harsher.
Minnesota has three tax brackets ranging from 5.35% to 7.85% and taxes Social Security to the same extent the federal government does. The state taxes pension income even if the pension was earned outside the state. Property taxes averaging more than $1,400 per person and sales taxes of 6.875% also rank in the top half of the nation, making the potential hit on retirees even larger.
Unlike most other states, Vermont taxes Social Security fully and has no exemptions for retirement income except for Railroad Retirement benefits. Vermont’s tax rates are the highest among these six states, with a low bracket of 3.55% giving way to four higher brackets from 6.8% to 8.95%. Moreover, with property taxes of nearly $2,200 per person and a 6% sales tax, Vermont doesn’t give retirees much of a break in other areas of taxation, either.
A taxing proposition
Of course, state income taxes are only one small part of the living expenses that retirees have to pay, and for many of these states, overall costs of living are well below the national average. Nevertheless, forcing retirees to bear the same or nearly the same tax burden on their retirement income as workers pay on their wages and salaries is a practice that most states have given up on, and retirees in these few holdout states need to be aware of the tax consequences that their choice of residence will have on their finances.
The article These 6 States Tax Retirees the Hardest originally appeared on Fool.com and is written by Dan Caplinger.
Fool contributor Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned.
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