Overview of District of Columbia Retirement Tax Friendliness
The District of Columbia exempts all Social Security retirement benefits from the city income tax and provides a deduction against government pension income. At the same time, it taxes income from retirement accounts.
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.
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District of Columbia Retirement Taxes
Thinking about a retirement in the nation’s capital? Washington, D.C. has much to offer in the way of culture and history, with attractions such as the National Museum of Natural History, the Smithsonian and the National World War II Memorial.
As compared with the tax systems in the 50 states, Washington, D.C. is moderately tax-friendly for retirees. It helps them out by exempting all Social Security retirement benefits from the city income tax and providing a deduction against government pension income. At the same time, it taxes income from retirement accounts, which is exempt in many states.
As discussed in further detail below, the District of Columbia has relatively low sales and property taxes. However, these are offset by the city’s high cost of living.
A financial advisor in Washington, D.C. 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 Washington, D.C. tax-friendly for retirees?
Washington, D.C. is moderately tax-friendly for retirees. While it provides some exemptions and deductions to help retirees reduce their overall tax burden, it taxes certain things that are not taxed in many other parts of the country. For example, the District grants a full exemption of Social Security retirement benefits but taxes private pension income and distributions from retirement accounts as regular income.
D.C.’s sales tax rates and property tax rates are quite low, but high prices on goods and real estate mean residents of D.C. pay high amounts in dollar terms. The city also has a fairly hefty estate tax.
Is Social Security taxable in Washington, D.C.?
Washington, D.C. fully exempts Social Security retirement benefits from its income tax. Even Social Security income that is taxed at the federal level is not taxed in D.C.
Are other forms of retirement income taxable in Washington, D.C.?
Income from a pension, 401(k), IRA or any other type of retirement account is taxable in the District of Columbia at rates ranging from 4% to 8.95%. Check out the breakdown of these rates below.
Income Tax Brackets
|District of Columbia Taxable Income||Rate|
|$0 - $10,000||4.00%|
|$10,000 - $40,000||6.00%|
|$40,000 - $60,000||6.50%|
|$60,000 - $350,000||8.50%|
|$350,000 - $1,000,000||8.75%|
How high are property taxes in Washington, D.C.?
Property tax rates in the District of Columbia are low, but property tax bills can be quite high. This is because of the high home values in Washington, D.C, as the city’s median home value is almost $540,000.
Even at the city’s average effective property tax rate of 0.55%, that still implies that the typical homeowner spends about $2,900 a year on property taxes. However, seniors who own a home in the District can cut down on that cost significantly by taking advantage of the city’s tax relief programs, described below.
What is the D.C. senior citizen or disabled property owner tax relief program?
Washington, D.C. provides an exemption of 50% to senior homeowners and homeowners who are disabled. To qualify you must be at least 65 years old or disabled. The total income of everyone who lives at the property must be lower than $133,100.
You must also meet all requirements for the Washington, D.C. homestead deduction. The homestead deduction reduces assessed value by up to $74,850. Eligible homeowners must occupy the home they own. It must be their principal residence. It can have no more than five units.
Combined, these two programs can save most seniors significant money on their property tax bills.
How high are sales taxes in Washington, D.C.?
The sales tax rate in Washington, D.C. is 6%. Compared with the combined state and local rates in U.S. states, that would rank as the 11th lowest. Furthermore, some exemptions help to reduce the overall burden of sales taxes on seniors. Medicine is exempt from sales tax, including both prescription and over-the-counter drugs. Groceries are also exempt.
What other Washington, D.C. taxes should I be concerned about?
Washington, D.C. has an estate tax that will affect a greater percentage of estates than the federal tax. That’s because its exemption amount is $5,681,760, which means D.C. estates valued over that amount face tax rates of up to 16%. In comparison, the federal exemption is $11.58 million for 2020.
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