Here Are Some Tax Tips for Retirees in Western States

Navigating your taxes never feels easy, and it can be all the more complicated when state-by-state rules governing retirement income come into play. Which states tax retirement income? Which states don’t? Which states are best for retirees come tax time?

GOBankingRates has culled together some answers regarding the Western states. Considering retiring in the West? Already there and don’t know what do to for tax season? Keep reading for Western state tax tips and tricks.

A way to save money in Arizona come tax time is to take advantage of the Arizona property value freeze. This is a kind of tax relief that will essentially “freeze” a home’s value in terms of property tax, thereby preventing any increases in annual property taxes going forward. Beyond that, seniors are also able to defer property tax payments by falling within certain guidelines — specifically, a household income limit and an assessed property value maximum.

Arizona does not tax Social Security. It does tax other retirement income, but some pensions qualify for exemptions.

In addition to its personal income tax exemption, California provides a senior income tax exemption, which doubles the exemption provided to retired Californians.

Colorado provides a retirement income deduction up to $24,000 annually for those over the age of 65 — and $20,000 for those between the early retirement ages of 55 and 64. This also applies to pensions and distributions from IRA and 401(k) accounts.

While Idaho does not tax Social Security benefits — and has low property taxes and sales taxes — it does tax retirement savings accounts (such as IRAs). Idaho retirees are recommended to take advantage of the “circuit breaker” tax reduction, which lowers the property taxes for residents over the age of 65 with annual incomes under $37,810.

A big tax benefit to Montana is the absence of sales tax, as well as low property taxes compared to the rest of America. That said, retirees are required to pay taxes on their Social Security retirement benefits, which can be a frustration for those with limited means.

The state does provide a deduction for Social Security recipients who make less than $25,000 (less than $32,000 for joint filers). Additionally, those who make more than that (but less than $34,000 for single filers and less than $44,000 for couples) can still deduct 50% of their Social Security income when filing.

Nevada can be a very attractive state for retirees, as Social Security benefits are not taxed by the state. Further, no income from 401(k)s, IRAs or pensions is taxed either. Combined with the fact that the state also has comparatively low property taxes and has sales tax exemptions designed to benefit retirees by not taxing prescription drugs, wheelchairs, groceries, newspapers and medical equipment, the biggest tip is simply this: If you can, retire in Nevada.

New Mexico retirees are recommended to take advantage of the state’s retirement income deduction for those over the age of 65 — seniors with income under $28,500 ($51,000 for joint filers) can take $8,000 deductions on their retirement income.

Social Security benefits are not taxed by the state except on people who make more than $100,000. If you are 100 or older, you do not pay state taxes.

While Oregon does not tax Social Security benefits, it does tax IRAs, 401(k)s and similar retirement accounts. However, retirees with annual incomes of less than $22,500 (for individuals) or $45,000 (for joint filers) and Social Security benefits of less than $7,500 (for singles) or $15,000 (for couples) can take a credit of up to 9% of their pension income.

All retirement income is taxable in Utah, including Social Security benefits. To help offset this, retirees on pensions can utilize a $450 tax credit. Utah homeowners can employ an exemption of 45% of their home value, which can decrease property taxes by a large margin. This “Utah Circuit Breaker” exemption is available to seniors over the age of 66 and with household incomes under $40,840.

No retirement income is taxed in Washington, as the state does not have an income tax of any sort — which makes tax time relatively easy for retired seniors. Also, homeowners over the age of 61 who are unable to work due to disability or who are veterans can exempt a percentage of their property value up to $70,000.

Wyoming has no income tax, so no retirement income is taxed in the state, including Social Security benefits. It also has an extremely low property tax rate of 0.55%. Housing prices are also very low, and groceries, medical equipment and prescription drugs are all tax-exempt. Like Nevada, perhaps the biggest tip for retirees is simply to move to Wyoming, and let the state save for you.