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Idaho Retirement Tax Friendliness

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Overview of Idaho Retirement Tax Friendliness

Social Security retirement benefits are not taxed at the state level in Idaho. Additionally, the state’s property and sales taxes are relatively low. Other forms of retirement income, such as from a 401(k) or an IRA, are taxed at rates ranging from 1.6% to 7.4%.

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You will pay of Idaho 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, and your marginal state tax rate is %.
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Idaho Retirement Taxes

Photo credit: ©iStock.com/nicoolay

This mountainous western state has a lot to offer retirees, including breathtaking scenery, a low cost of living and some of the country’s best skiing. When it comes to retirement taxes, however, Idaho is a mixed bag.

The good news is that Idaho doesn’t tax Social Security income at the state level. Additionally, the state’s property and sales taxes are relatively low. The bad news is that other forms of retirement income are taxed at rates ranging from 1.6% to 7.4%. So, depending on your primary income source and level of income, Idaho may or may not be great for you.

Is Idaho tax-friendly for retirees?

Idaho is generally a tax-friendly state for retirees, but whether that’s true for you will depend on your specific circumstances. Seniors who intend to rely mostly on Social Security will find Idaho tax-friendly, as the state does not tax Social Security and has low property and sales taxes. On the other hand, seniors who will be receiving significant income from retirement savings accounts like an IRA may find Idaho’s tax-system to be less agreeable.

Is Social Security taxable in Idaho?

No! Social Security income is entirely tax exempt from the Idaho state income tax. In order to exempt your Social Security income, you will need to attach Form 39R to your Form 40.

Are other forms of retirement income taxable in Idaho?

Yes. Income from retirement savings accounts, including 401(k) accounts and IRAs, is fully taxable at rates ranging from 1.6% to 7.4%. See the full Idaho tax brackets below. Income from a private sector pension is also fully taxable, but income from public pensions qualifies for a deduction for taxpayers age 65 and older.

The total amount of that deduction is equal to $48,366 for joint filers or $32,244 for single filers in 2017. However, that deduction is reduced by an amount equal to the amount of the taxpayer’s Social Security income. So, for example, a single filer with Social Security income of $15,000 would only be eligible for a deduction on public pension income of $17,244 ($32,244 minus $15,000).

Income Tax Brackets

Single Filers
Idaho Taxable IncomeRate
$1 - $1,4721.60%
$1,472 - $2,9453.60%
$2,945 - $4,4174.10%
$4,417 - $5,8905.10%
$5,890 - $7,3626.10%
$7,362 - $11,0437.10%
$11,043+7.40%
Married, Filing Jointly
Idaho Taxable IncomeRate
$1 - $2,9441.60%
$2,944 - $5,8903.60%
$5,890 - $8,8344.10%
$8,834 - $11,7805.10%
$11,780 - $14,7246.10%
14,724 - $22,0867.10%
$22,086+7.40%
Married, Filing Separately
Idaho Taxable IncomeRate
$1 - $1,4721.60%
$1,472 - $2,9453.60%
$2,945 - $4,4174.10%
$4,417 - $5,8905.10%
$5,890 - $7,3626.10%
$7,362 - $11,0437.10%
$11,043+7.40%
Head of Household
Idaho Taxable IncomeRate
$1 - $2,9441.60%
$2,944 - $5,8903.60%
$5,890 - $8,8344.10%
$8,834 - $11,7805.10%
$11,780 - $14,7246.10%
14,724 - $22,0867.10%
$22,086+7.40%

How high are property taxes in Idaho?

Property tax rates in Idaho are relatively low. The state’s average effective rate is 0.76%, 12th lowest in the U.S. That means an Idaho homeowner can expect to pay about $760 in annual property taxes per $100,000 in home value.

What is the Idaho property tax reduction?

Also called the “circuit breaker,” the Idaho property tax reduction lowers the total property tax bill for Idaho homeowners who meet certain criteria. Seniors who are age 65 or older qualify for this deduction if they own and occupy their home and had 2017 income of less than $30,050. The circuit breaker reduces taxes by up to $1,320 on a home with no more than one acre of property.

Photo credit: ©iStock.com/renal

How high are sales taxes in Idaho?

Idaho has just the 37th highest average total sales tax rate of any state. While the statewide sales tax rate is relatively high at 6%, only six cities charge a local sales tax. Thus, you can expect to pay 6% sales tax unless you go to a handful of cities popular with tourists, including Stanley and Sun Valley).

What other Idaho taxes should I be concerned about?

Other than the above – none. The Gem State has no estate or inheritance tax, so unless your estate might qualify for the federal tax (the exemption is $5.49 million for 2017 and $11.2 million for 2018), you don’t need to worry about that.

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