A mix of taxes on Social Security benefits and soaring property taxes makes 10 states among the least tax-friendly for retirees.
Here is a look at three of the 10, according to Kiplinger’s 2018 analysis of state taxes.
- Vermont: Vermont has a steep top income tax rate of 8.75% (on taxable income of more than $195,450 for individual filers/$237,950 for joint filers), and most retirement income is taxed, the report said. The state also taxes all or part of Social Security benefits for single residents with federal adjusted gross income over $45,000 (over $60,000 for married couples filing a joint return), the report said. The average combined rate of state and local sales tax is 6.18%, it said.
- New Mexico: In this state, Social Security benefits, retirement accounts and pensions are all taxable. The state offersr a retirement-income exemption of up to $8,000, but certain income restrictions apply. The average combined rate of state and local sales tax is 7.78%. However, income tax is completely waived once you reach your 100th birthday.
- Utah: Utah taxes Social Security benefits and distributions from retirement savings plans and income from public and private pensions. The state offers a retirement-income tax credit for seniors who meet certain income limits, the report said.The state sales tax is 5.95%, including a 2.15% tax that goes to local governments. Localities can add up to an additional 2.65%; the average combined rate is 6.78%.
Amd regardless of just what state you call home, there are seemingly many new challenges faces retirees as tax-preparation season looms.
Meanwhile, rhe U.S. Internal Revenue Service recently hoisted a big red-flag warning to retirees earlier this month: take a look at how much income tax you are paying throughout 2018, because the amount could need an adjustment in the wake of the new federal tax law, Reuters reported.
The Tax Cuts and Jobs Act of 2017 (TCJA), signed into law by President Donald Trump last December, made important changes to tax rates, brackets, deductions and exemptions that affect all taxpayers. Retirees need to pay special attention to income coming from tax-deferred retirement accounts, pensions and annuities. Higher-income retirees may also owe taxes on Social Security benefits.
The amount of total income tax you owe could be going up or down, depending on your personal circumstances.
Failing to pay the right amount through the year could subject you to a penalty next April when your federal income tax return is filed. The penalty is determined by multiplying an interest rate, determined by the IRS, by your underpaid amount; the current interest rate is 5 percent. Taxation of retirement income by states is all over the map (bit.ly/2MPajDB), but your state tax return also could be impacted.
The IRS recently issued a bulletin urging retirees to do a check-up on amounts that are being paid in quarterly installments or withheld. Taxes are due throughout the year, either through quarterly estimated payments, or through withholding by pension plan sponsors or annuity providers. Taxes also are owed on Social Security.
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