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Maine Retirement Tax Friendliness

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Overview of Maine Retirement Tax Friendliness

While Maine does not tax Social Security income, other forms of retirement income are taxed at rates as high as 7.95%. It also has above-average property taxes and an estate tax with an exemption half the size of the federal estate tax.

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Annual Wages
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Location
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Annual Income from Private Pension
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You will pay of Maine state taxes on your pre-tax income of
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State
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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.
  • 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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Maine Retirement Taxes

Photo credit: ©iStock.com/KeithBinns

According to the National Oceanic and Atmospheric Administration, Maine has 3,478 miles of coastline, fourth most of any state. That means plenty of space to sail, swim, kayak or watch the sunrise. Those are all good reasons to choose Maine as a retirement destination, but what about the state’s tax system?

Bad news there. As compared with other states, Maine has relatively punitive tax rules for retirees. While it does not tax Social Security income, other forms of retirement income are taxed at rates as high as 7.95%. It also has above-average property taxes and an estate tax with an exemption half the size of the federal estate tax.

Is Maine tax-friendly for retirees?

No. Social Security is exempt from taxation in Maine but other forms of retirement income are not. Seniors who receive retirement income from a 401(k), IRA or pension will pay tax rates as high as 7.95%. The state’s property taxes are somewhat higher than the national average. Maine has an estate tax with an exemption of $2 million. The state sales tax rate is relatively low at 5.5%.

Is Social Security taxable in Maine?

All Social Security income in Maine is exempt from the state income tax. Any Social Security income included in your federal Adjusted Gross Income (AGI) should be subtracted out of your Maine income when filing you state income tax return.

Are other forms of retirement income taxable in Maine?

Yes. Income from retirement savings accounts like an IRA or 401(k) is taxable. Pension income, whether from a public employee pension fund or from a private employer, is also taxable.

Maine does allow for a deduction of up to $10,000 per year on this income. However, that deduction is reduced in an amount equal to your annual Social Security benefit. So, for example, if you receive $12,000 in Social Security benefits this year, you cannot claim the deduction on your other forms of retirement income. In that case, all your other retirement income will be taxed as part of your gross income at the rates shown in the bracket table below.

Income Tax Brackets

Single Filers
Maine Taxable IncomeRate
Less than $21,1005.80%
over $21,100 but less than $50,0006.75%
$50,000+7.15%
Married, Filing Jointly
Maine Taxable IncomeRate
Less than $42,2505.80%
over $42,250 but less than $100,0006.75%
$100,000+7.15%
Married, Filing Separately
Maine Taxable IncomeRate
Less than $21,1005.80%
over $21,100 but less than $50,0006.75%
$50,000+7.15%
Head of Household
Maine Taxable IncomeRate
Less than $31,6505.80%
over $31,650 but less than $75,0006.75%
$75,000+7.15%

How high are property taxes in Maine?

Slightly above average. A typical Maine homeowner can expect to pay about $1,230 in property taxes for every $100,000 in home value. That is slightly higher than the national average. Note, however, that overall housing costs in Maine are 22% higher than the national average.

What is the Maine homestead exemption?

Maine homeowners whose home is their permanent residence and have owned it for at least 12 months are eligible for the homestead exemption. It is equal to $10,000, to be subtracted from the home’s taxable value prior to the application of local tax rates.

Senior veterans are also eligible for the veteran exemption. It is equal to $6,000 and available to anyone over the age of 61 who served in the military during a recognized war period.

Photo credit: ©iStock.com/jmorse2000

How high are sales taxes in Maine?

Relatively low. The state sales tax rate is 5.5% but there are no additional county or city rates collected on top of that. 5.5% is therefore the highest possible rate you can pay in the entire state of Maine. Seniors also benefit from a number of major sales tax exemptions. Items exempt from the sales tax in Maine include groceries, prescription drugs and durable medical equipment such as wheelchairs.

What other Maine taxes should I be concerned about?

The Maine estate tax applies to all estates with a taxable value of $2 million or higher. Above that exemption amount, rates begin at 8% and increase to 12%. So, for example, if you plan on passing on property worth $3 million to your loved ones, keep in mind that one third of that amount will be subject to the state estate tax.

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