BUSINESS WIRE-When contemplating locations for retirement, warm weather and proximity to family are likely top considerations for most soon-to-be retirees. However, calculating the best places to stretch a fixed retirement income also should be top of mind.
Understanding the current state tax treatments of retirement benefits can be a key factor in deciding where to establish new, post-career roots.
According to an analysis by New Yorkbased Wolters Kluwer accounting firm, seven states don’t tax individual income-retirement or otherwise-and two other states impose income taxes only on dividends and interest. In the other 41 states and the District of Columbia, tax treatment of retirement benefits varies widely. For example, some states exempt all pension income or all Social Security income. Other states provide only partial exemptions or credits and some tax all retirement income.
Three states exempt pension income entirely for qualified individuals, while 25 states exempt or provide a credit for a portion of pension income. Thirteen states and the District of Columbia tax pension income.
Tax is imposed on Social Security income in 13 states. These states either tax Social Security income to the same extent that the federal government does or provide limited breaks for Social Security income, often for lower-income individuals.
Several states enacted changes in 2017 to their income tax laws for retirement plans:
Kansas: Self-employed taxpayers may now claim the federal deduction for pension, profit sharing, and annuity plans on their state returns.
Maiyland: Retired law enforcement, fire and rescue, or emergency services personnel who are at least 55 years old may exclude up to $15,000 of retirement income from taxable income.
Minnesota: A portion of Social Security benefits may be deducted with the maximum deduction set at $4,500 for married couples filing joint returns, $3,500 for single and head-of-household filers, and $2,250 for married couples filing joint returns.
New York: Distributions from a retirement plan maybe deductible if used to pay for repairs to a primary residence in certain New York counties because of damage by above average precipitation and snowmelt in April and May 2017New
state tax reforms effective beginning with 2018 tax year:
Arkansas: Militaiy retirement and survivor benefits are now exempt. However, a taxpayer claiming the exemption may not claim the $6,000 exemption on retirement benefits received from nonmilitary sources.
Connecticut: A complete deduction for retirement income will be phased in from 2019 to 2025, the income thresholds for Social Security deduction are increased beginning in 2019, and the increase in the teacher retirement system deduction (25 percent to 50 percent) is delayed until 2019. In addition, withholding is now required from pension or annuity distributions to Connecticut residents if the payer maintains an office or transacts business in the state.
Indiana: A $6,250 deduction is available for military retirement and survivor’s benefits. The $5,000 deduction for a nonretirement military income, which previously was a combined deduction including military income and military retirement benefits, is retained.
Michigan: The deduction for retirement benefits received for services in the U.S. Armed Forces is expanded to include pension benefits. In addition, an increased deduction for retirement or pension benefits from governmental employment is allowed for taxpayers born after 1945 who retired by 2013.
Utah: Small employers of 10 to 19 employees may claim a $50 tax credit for offering a qualified employee retirement plan.
West Virginia: Militaiy retirement income is exempt from tax.
Wisconsin: Taxpayers over 70 1/2 years of age may now make tax-free distributions from an IRA directly to a charitable organization.
Wolters Kluwer Tax & Accounting is New York-based provider of software and expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency.
7 – The number of sates remaining that haven’t enacted income taxes
State taxes on retirement benefits can be a key factor in deciding where to establish post-career roots.
This article provided by NewsEdge.