The Three Least Tax-Friendly States For Retirees

Kiplinger has released its ranking of the tax-friendliness of every state for retirees.

From which states are retirees running scared? Here are the three least tax-friendly states for retirees.

#3: Connecticut.

Here’s Kiplinger’s explanation:

State Income Tax: 3.0% to 6.7%
State Sales Tax: 6.35% (7.0% for certain luxury items)
Estate Tax/Inheritance Tax: Yes/No

The Constitution State is a tax nightmare for many retirees. Its real estate taxes are the 10th-highest in the nation, according to the Tax Foundation. Half of military retirement pay is excluded from taxes, but there are no exemptions or tax credits for other types of pensions or other retirement income. The state taxes a portion of Social Security benefits for single taxpayers with federal adjusted gross income of more than $50,000 and married taxpayers filing jointly with federal AGI of more than $60,000.

#2: Vermont.

Kiplinger explains:

State Income Tax: 3.55% to 8.95%
State Sales Tax: 6%
Estate Tax/Inheritance Tax: Yes/No

The Green Mountain State taxes most retirement income. Again, Social Security benefits are taxed to the same extent as they are by the federal government—up to 85%.

In addition to the state sales tax, local jurisdictions may add 1%. Food for home consumption, clothing, and prescription and nonprescription drugs are exempt. But when in Vermont, you’ll pay 9% tax on prepared foods, restaurant meals and lodging, and 10% if you order a glass of wine or beer in a restaurant.

#1: Rhode Island.

From Kiplinger:

State Income Tax: 3.75% to 5.99%
State Sales Tax: 7%
Estate Tax/Inheritance Tax: Yes/No

Even though Rhode Island has dropped its top income tax rate from 9.9% to 5.99%, the Ocean State’s tax rates remain among the highest in the U.S. Social Security benefits are taxed to the same extent as they are by the federal government—up to 85%. The state also taxes virtually all other sources of retirement income, including pension income.

Read the full list of 10 least tax-friendly states for retirees here.

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