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Top 10 States for Tax Reduced Military Retirement

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By Edited Aug 6, 2016 2 0

You have served the nation as a member of the Armed Forces for 20 or more years and now you are ready to retire. Have you picked a State to retire in?

Listen Up

Many military retirees I have talked with try to plan their move based on locations that create the least dent in their retirement checks. The first consideration in the selection of States to include in this list is whether or not they have a State Income Tax on Military Retirement Pay. This is either yes or no answer. The second criterion was whether or not the State taxes Social Security Income. There are States not listed here that have ways of reducing the tax burden, but our first objective here is to provide you a list of “No” State Income Tax and “No” Social Security Tax burden.

From our first listed State through to number seven, we won’t repeat ourselves with a redundant statement as to Yes or No on State income tax since that was our starting criteria. However, the last few States have some other tax stipulations to consider in your determining where to reside.

This will not be a long drawn-out sales pitch for any particular State. After scouring a multitude of sites and magazines and military blogs that provide opinions on the subject of military retirement living I offer you the following results. With that in mind, we will just stick to the basic information relating to taxes for each location. 

Number 1 - Alaska tops the list as best choice on the basis of having lower property taxes as a result of a $150,000 property value exemption.[1] Kiplinger list Alaska as one of the MOST tax-friendly locations for retirees[3]. The sales tax can range up to 7.5%[4] putting Alaska average in relation with other top ten States. 

Number 2 - Florida is probably the one state that will show up on everyone’s top-ten retirement list. This is another of Kiplinger’s MOST tax-friendly for retirees locations.[3] The sales tax burden is only 6% sales tax.[1]

Number 3 - Nevada has an average sales tax at 6.85%.[1] Kiplinger rates Nevada as another MOST tax-friendly for retirees.[3]

Number 4 - South Dakota sales tax rate is a low 4%; however they have a high motor vehicle fuel tax at 9%.[1] Kiplinger lists it as another MOST tax-friendly for retirees[3] but this author sees that as a bit generous considering the high motor fuel tax and other tales and business related revenue gathering streams used by Nevada and localities.

Number 5 - Texas sales tax is 6.25%,[1] still average for most of the country and one of Kiplinger’s tax friendly (but not a “Most” tax friendly).[3]

Number 6 - Washington sales tax is 6.5% and localities can add their own sales tax bringing the total burden to 9.5% in some areas. This compounding of sales tax should be considered since it means adding as much as 95 cents tax to every $10 (US) purchase.[1]

Number 7 - Wyoming property tax rate is 9.5% and sales tax at 4%[1][2] Wyoming has a Kiplinger rating of MOST tax-friendly for retirees[3]. This is generous rating appears to be primarily based on the very low sales tax rate.

Number 8 - Tennessee. As stated at the outset, here is the point of divergence from the selective criteria. Although Tennessee does not have a State Income Tax or a Social Security Tax; they do, however, have what is called a “Hall Tax” on interest and dividends income. For most military retirees this will not be a big deal unless you plan on having enough investments and savings to exceed the filing requirements. Interest and dividend income exceeding $1,250 or $2,500 if married filing jointly is taxable by the State.[4]  Sales tax is 7% and localities can add to that bringing the total up to 9.75%. County property taxes are reasonable; however, cities and townships can also tax property raising the total property tax burden.[3]

Number 9 - New Hampshire also has a tax on interest and dividends income at 5% and high property tax rates as well.[1] They also have high property taxes.[3]

Number 10  – This is a list of States that have some form of Income Tax; however, they exempt all or part of Military retirement pay: Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New Jersey, New York, Ohio, Pennsylvania, and Wisconsin.

Many States are rethinking their income tax laws. States like Ohio have recognized that they are losing thousands of retirees, thousands of jobs and billions of dollars in income revenue because of all the people moving to states that already don’t have this tax headache. Ohio is on our preferred list, primarily because they “Don’t” have income tax on Military Retirees and Railroad Retirees. Tomorrow is tomorrow; tax laws are volatile and as mentioned in the case of Ohio, the truth may change. We are only concerned here with what is your best bet in reducing your state tax burden as a military retiree.

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Bibliography

  1. Dan Dzombak, The Motley Fool "These states have no income tax." USA Today. 14/10/2014 <Web >
  2. "Taxes by State." Retirement Living. 14/10/2014 <Web >
  3. "State-by-State Guide to Taxes on Retirees." Kiplinger. 14/10/2014 <Web >
  4. "State / Territory Benefits." My Army Benefits. 14/10/2014 <Web >

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