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Delaware Retirement Tax Friendliness

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Overview of Delaware Retirement Tax Friendliness

Delaware does not tax Social Security retirement benefits. It is one of just four states with no sales tax at the state or local level. Delaware has the fourth lowest property tax rates of any state. It does not have an estate or inheritance tax.

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You will pay of Delaware state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, your marginal state tax rate is %.
Public pension income is taxed, private pension income is taxed.
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  • Our Tax Expert

    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Delaware Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

Many retirees in the Northeast and Mid-Atlantic States move to places like Florida and Texas upon retirement, seeking (among other things) warmer weather and lower taxes. While there’s no cure for the northeast’s cold weather, seniors who want to reduce their tax burden may not need to look quite so far south.

Instead, they might consider checking out Delaware. The First State has no sales tax and property tax rates that are among the lowest in the U.S. It does not tax Social Security income and grants significant deductions for other types of retirement income. Read on to learn more about these and other reasons taxes are low for retirees in Delaware.

Is Delaware tax-friendly for retirees?

Yes. It is one of just four states with no sales tax at the state or local level. It has the fourth lowest property tax rates of any state. It does not tax Social Security income. Delaware does not have an estate or inheritance tax. It provides a deduction of up to $15,000 on income from pensions or retirement savings accounts.

Is Social Security taxable in Delaware?

No. Delaware fully exempts all Social Security income from its state income tax.

Are other forms of retirement income taxable in Delaware?

Yes, but they are also eligible for a deduction. The deduction varies depending on the age of the taxpayer. For taxpayers less than 60 years old, the deduction is $2,000 per person. For taxpayers between the ages of 60 and 64, the deduction is $12,500 per person. For taxpayers over 64 years old, the deduction is $15,000.

The deduction applies to the combined total of all retirement income from pensions and retirement accounts (like a 401(k) or an IRA). If you are 65 or older and have $15,000 or less in income from these sources, you will not pay income tax on them.

Any retirement income in excess of the deduction will be included with other sources of income as part of your taxable income, to which Delaware’s state tax rates apply. The table below shows income tax rates in Delaware.

Income Tax Brackets

All Filers
Delaware Taxable IncomeRate
$0 - $2,0000.00%
$2,000 - $5,0002.20%
$5,000 - $10,0003.90%
$10,000 - $20,0004.80%
$20,000 - $25,0005.20%
$25,000 - $60,0005.55%
$60,000+6.60%

How high are property taxes in Delaware?

Delaware’s average effective property tax rate is a mere 0.51%. That means a homeowner could expect to pay $510 in taxes for every $100,000 in home value.

Housing costs in Delaware are far lower than those of most other states in the Mid-Atlantic and about 5.5% lower than the national average. The median home value in the state is around $250,000.

What is the Delaware senior school property tax credit?

The senior school property tax credit is a form of property tax relief for seniors in Delaware. To qualify, you must be over 64 years old and own a home in the state as your primary residence. The credit is equal to 50% of school property taxes, up to a maximum of $500 per year.

Photo credit: ©iStock.com/ToddSm66

How high are sales taxes in Delaware?

There is no sales tax in Delaware! That’s right, all Delaware purchases are tax-free. For many seniors, that could mean savings of hundreds of dollars per year on things like clothing, food and entertainment.

What other Delaware taxes should I be concerned about?

Delaware does have an estate tax, but it affects a tiny percentage of the population. The exemption is $5.43 million, equal to the federal exemption. Estates with a total taxable value below that amount are not subject to the tax.

Capital gains in Delaware are also subject to tax. Long-term and short-term capital gains are taxed as regular personal income, at the rates shown in the income tax bracket table above. This is important to keep in mind for seniors who are planning on income from real estate sales or other types of investment income outside of retirement accounts.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration