Does Delaware tax retirement income? Understanding tax benefits for retirees and more
Learn about Delaware’s tax policies and other benefits the state has to offer to see if this is the right place for you to spend your retirement.
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Delaware’s retirement income taxes: Delaware does have state income taxes, but exceptions allow residents over age 60 to exclude up to $12,500 in qualified retirement income from state taxes.
Pension and Social Security taxes in Delaware: Delaware does tax pension income, but exemptions may apply, however, Social Security income is exempt from state income taxes.
Weighing the pros and cons: Each state has unique advantages and potential disadvantages. It is important to weigh them out when deciding if you want to relocate.
What are Delaware’s taxes on retirement income?
When considering relocating during retirement, many retirees look to states with lower taxes to stretch their retirement funds. Retirement taxes in Delaware, along with other tax perks, make the First State appealing to retirees.
Delaware does tax retirement income through its graduated state income tax system, with rates reaching up to 6.60%, depending on your earned income.1 However, certain exemptions may apply.
Retirees aged 60 and older may also be able to exclude qualified retirement income, but restrictions may apply.2 You may also want to consider federal tax rates.If you are looking to relocate to the First State during retirement, you might want to consult a retirement financial advisor to help determine how much income taxes you would be paying.
Does Delaware tax pensions and Social Security?
Income you receive from pensions is subject to personal income tax in Delaware, but deductions may still apply. Social Security income, on the other hand, is exempt from state income taxes, which can help you maximize your Social Security benefits. However, federal taxes may still apply.
What other taxes do retirees pay in Delaware?
While Delaware does impose personal income taxes, other tax benefits make it a tax-friendly state for retirees. The First State is among the best states to retire in for tax purposes. Numerous advantages can help reduce the overall tax burden for retirees, including:
Sales taxes in Delaware
Delaware is one of five states that does not impose state or local sales taxes. This allows you to save money on everyday purchases, shopping, and other major expenses.
Property taxes in Delaware
The First State has some of the lowest property taxes in the country, with an average effective property tax rate of 0.50%.3 This rate may vary depending on the county. Some retirees may also be eligible for property tax relief programs.
It is useful to note that Delaware does not have personal property taxes, so you will not owe annual taxes on RVs, boats, or automobiles on the state level.
Capital gains taxes in Delaware
Delaware’s income taxes also apply to capital gains, at the same rate your income is taxed. However, there are no inheritance taxes.
Is Delaware tax-friendly for retirees?
Due to the absence of sales taxes, along with low property and income tax rates, this makes Delaware a tax-friendly state for retirees. The First State offers many tax benefits that can be attractive to those with a fixed retirement budget or those seeking to minimize their tax burden in retirement.
Pros and cons of retiring in Delaware
However, tax benefits aside, it is still important to consider the advantages and disadvantages of living in Delaware to help determine if this is the right state for you.
The pros of retiring in Delaware
- Proximity to major cities: You can easily reach Philadelphia, Baltimore, Washington, D.C., and New York City without the high cost of living of those cities.
Moderate climate: Delaware has relatively mild seasons compared to other northern states.
Coastal access and outdoor recreation: Coastal towns like Rehoboth Beach and Bethany Beach offer relaxed, scenic environments for retirement. The First State is also home to various state parks, beaches, and forests, providing opportunities for outdoor recreation like hiking, boating, or fishing. Delaware’s well-known golf courses are also attractive for some retirees.
Small-state feel with a peaceful environment: Less congestion, shorter commutes, and a mix of small-town charm and urban amenities make it the perfect location for those looking for a more relaxed environment during retirement.
The cons of retiring in Delaware
- Limited public transportation: Public transportation options can be limited for those living outside major cities.
Variable access to healthcare: While there are quality hospitals, access to them may be difficult from rural areas, with options being more limited. This can be a concern for those with chronic health issues.
High cost of living: The cost of living is higher compared to the national average. Popular beach towns can lead to increased prices in real estate and living expenses.
Less entertainment diversity: Delaware is one of the smallest states in the country, and may therefore lack the cultural or nightlife variety found in major metropolitan areas.
Bottom line
Delaware offers various tax benefits to retirees along with a relaxed environment, providing ample opportunities for recreation to keep you entertained during retirement. It is important to weigh the pros and cons associated with retiring in Delaware before deciding to move. You might even consider seeking professional advice to review your finances and ensure it is the right financial decision for you.
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.