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 sixth lowest property tax rates of any state. It also does not have an estate or inheritance tax.
Annual Social Security Income
Annual Retirement Account Income
Year of Birth
Annual Income from Private Pension
Annual Income from Public Pension
|is toward retirees.|
|Social Security income is taxed.|
|Withdrawals from retirement accounts are taxed.|
|Wages are taxed at normal rates, and your marginal state tax rate is %.|
- 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.
Delaware Retirement Taxes
Many retirees in the Northeast and Mid-Atlantic States move to places like Florida and Texas upon retirement, seeking warmer weather and lower taxes. While there’s no cure for the Northeast’s colder weather, seniors who want to reduce their tax burden may not need to look quite so far south.
Instead, they might consider Delaware. The First State has no sales tax and property tax rates that are among the lowest in the country. It also does not tax Social Security income and grants significant deductions for other types of retirement income.
A financial advisor in Delaware can help you plan for retirement and other financial goals. Financial advisors can also help with investing and financial plans, including taxes, homeownership, insurance and estate planning, to make sure you are preparing for the future.
Is Delaware tax-friendly for retirees?
Delaware is one of just four states with no sales tax at the state or local level. Further, it has the sixth lowest property tax rates of any state, and it doesn't tax Social Security income. If that wasn't enough, Delaware doesn't have an estate or inheritance tax, and it provides a deduction of up to $12,500 on income from pensions or retirement savings accounts.
Is Social Security taxable in Delaware?
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 age 60 or older, the deduction is $12,500.
The deduction applies to the combined total of all retirement income from pensions and retirement accounts like a 401(k) or IRA. If you are 65 or older and have $12,500 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
|Delaware Taxable Income||Rate|
|$0 - $2,000||0.00%|
|$2,000 - $5,000||2.20%|
|$5,000 - $10,000||3.90%|
|$10,000 - $20,000||4.80%|
|$20,000 - $25,000||5.20%|
|$25,000 - $60,000||5.55%|
How high are property taxes in Delaware?
Delaware’s average effective property tax rate is a mere 0.56%. That means a homeowner could expect to pay $560 in taxes for every $100,000 in home value.
The median home value in Delaware is $238,600, which is $45,000 higher than the national median. Despite being high on a countrywide level, home values in Delaware are low relative to elsewhere in the Mid-Atlantic, like Maryland, Virginia and the District of Columbia.
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 age 65 or older 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 $400 per year.
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?
As of Jan. 1, 2018, Delaware has repealed its estate tax. So as long as your estate is under the federal threshold of $11.4 million, you're in the clear.
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.
Methodology To find the most tax friendly places for retirees, our study analyzed how the tax policies of each city would impact a theoretical retiree with an annual income of $50,000. Our analysis assumes a retiree receiving $15,000 from Social Security benefits, $10,000 from a private pension, $10,000 in wages and $15,000 from a retirement savings account like a 401(k) or IRA.
To calculate the expected income tax this person would pay in each location, we applied the relevant 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 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 after subtracting 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 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. The income tax category made up 40% of the index, property taxes accounted for 30%, sales taxes 20% and fuel taxes 10%.
Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2018 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration