What’s The Least Tax-Friendly State for Retirees?

Many states actively try to attract retirees with favorable policies: tax exemptions for Social Security and other retirement income, low property taxes, and more.

Other states, not so much.

Kiplinger this month put together its annual list of the 10 least tax-friendly states for senior citizens.

Here’s the quick list (click on any state to see Kiplinger’s analysis):

10) Utah

9) New York

8) New Jersey

7) Nebraska

6) California

5) Montana

4) Oregon

3) Minnesota

2) Connecticut

And the absolute least tax-friendly state for retirees in the USA?

Vermont, a state which imposes its own estate tax and taxes Social Security benefits.

Here’s Kiplinger on Vermont:

State Income Tax: 3.55% (on taxable income as much as $39,900/individual, $69,900/joint) – 8.95% (on taxable income greater than $415,600/individual, $421,900/joint)

Average State and Local Sales Tax: 6.17%

Estate Tax/Inheritance Tax: Yes/No

The Green Mountain State doesn’t coddle retirees. It has a steep top income tax rate, and most retirement income is taxed. Vermont treats Social Security benefits the same way the federal government does, which means as much as 85% of your benefits could be taxed.

Vermont limits deductions to $15,000 for single residents and $31,500 for married couples. If your income is $1 million, that would cost you about $5,000 in additional state taxes every year.

Local jurisdictions can add 1% to the state sales tax. Food for home consumption, clothing, and prescription and nonprescription drugs are exempt. But 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.

The median property tax on the state’s median home value of $214,600 is $3,797, the eighth-highest property-tax rate in the U.S. Eligible Vermont residents can make a claim for a rebate of their school and municipal property taxes if their household income does not exceed a certain level.

Like many of the states on this list, Vermont imposes its own estate tax on estates that exceed $2.75 million – a relatively low threshold that ensnares more estates than the federal death tax. The maximum estate-tax rate is 16%. Assets left to a surviving spouse are exempt.