Dear Bebe,
My husband and I live in our family home in Northern Virginia, and are both recently retired. What state exemptions and deductions are available for retirees? Could you also tell me about Maryland and DC, since we have family and friends in both places. Thanks for your help!
Virginia Seenyor
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Dear Virginia,
The state of Virginia has a number of exemptions and deductions that make it tax-friendly for retirees. First, it exempts all Social Security income from the state income tax. It also provides seniors with a deduction of $12,000 per year against all other forms of retirement income. In addition, those who rely solely on Social Security and other retirement income totaling less than $12,000 do not have to pay state taxes on retirement income in Virginia.
Senior homeowners also fare well in Virginia, as the state has very low property tax rates generous property tax exemptions. Likewise, the average state and county sales tax rate is 5.63%, among the lowest in the U.S.
Is retirement income taxable in Virginia?
Income withdrawn from retirement accounts, such as a 401(k) or an IRA, is taxable, as is any pension income. Much of that income is also deductible, however. Virginia offers an age deduction of up to $12,000 for persons age 65 and older. The age deduction is also available to taxpayers below the age of 65 but it phases out for filers with income over $50,000 (for single filers) or $75,000 (for joint filers).
That deduction can be applied to any type of retirement income, whether from a pension, a 401(k), or an IRA. If total retirement income is less than $12,000, it is essentially tax-free.
Maryland exempts some types of retirement income, including Social Security, from state income taxes but fully taxes others, such as income from an IRA or a 401(k). Maryland is one of just two states in the country that has both an estate and an inheritance tax. In Maryland, wages are taxed at normal rates, and your marginal state tax rate is 4.00%. Public pension income is partially taxed, and private pension income is fully taxed.
The District of Columbia is moderately tax-friendly toward retirees. Social Security income is not taxed. Withdrawals from retirement accounts are fully taxed. Wages are taxed at normal rates, and your marginal state tax rate is 6.00%. Public pension income is partially taxed, and private pension income is fully taxed.
Hope this is helpful,
Bebe
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