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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 7.15%. It also has above average property taxes.

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You will pay of Maine 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 %.
  • 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?

Compared to 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 7.15%. It also has above average property taxes. However, the estate tax exemption here is among the highest state exemption levels.

A financial advisor in Maine 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 Maine tax-friendly for retirees?

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 7.15%.

The state’s property taxes are somewhat higher than the national average at a 1.35% effective rate. Maine's estate tax exemption threshold is $5.7 million, which is high for a state figure, albeit still well below the federal threshold of $11.4 million for 2019.

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?

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 of pension 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
$0 - $21,8505.80%
$21,850 - $51,7006.75%
$51,700+7.15%
Married, Filing Jointly
Maine Taxable IncomeRate
$0 - $43,7005.80%
$43,700 - $103,4006.75%
$103,400+7.15%
Married, Filing Separately
Maine Taxable IncomeRate
$0 - $21,8505.80%
$21,850 - $51,7006.75%
$51,700+7.15%
Head of Household
Maine Taxable IncomeRate
$0 - $32,7505.80%
$32,750 - $77,5506.75%
$77,550+7.15%

How high are property taxes in Maine?

A typical Maine homeowner can expect to pay about $1,350 in property taxes for every $100,000 in home value. While this rate is higher than the national average, the median home value in Maine is lower than the national median at $179,900.

What is the Maine homestead exemption?

Maine homeowners whose home is their permanent residence and they've owned it for at least 12 months are eligible for the homestead exemption. It is worth up to $20,000, which is 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 any veteran who is 62 or older.

Photo credit: ©iStock.com/jmorse2000

How high are sales taxes in Maine?

The state sales tax rate in Maine is relatively low at 5.5%, but there are no additional county or city rates collected on top of that. Therefore, 5.5% is 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 $5.7 million or higher.

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 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