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Oklahoma Retirement Tax Friendliness

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Overview of Oklahoma Retirement Tax Friendliness

Oklahoma provides a full exemption for Social Security retirement benefits. It also provides a $10,000 deduction toward other types of retirement income such as from a 401(k) or a pension. Although sales taxes in Oklahoma are high, property taxes are among the lowest in the country.

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You will pay of Oklahoma 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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    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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Oklahoma Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

Oklahoma has the 11th lowest cost of living of any U.S. state, making it a great choice for an affordable retirement. The average food, housing and medical costs for Oklahoma residents are all below the national average.

The state’s tax system is likewise friendly toward budget-conscious retirees. Oklahoma provides a full exemption for Social Security retirement benefits. It also provides a $10,000 deduction toward other types of retirement income such as income from a 401(k) or a pension. Although sales taxes in Oklahoma are high, property taxes are among the lowest in the country.

Is Oklahoma tax-friendly for retirees?

Yes. The Sooner State exempts Social Security from taxation while providing a deduction of $10,000 across all other types of retirement income. For those with retirement income in excess of that deduction or with work income, tax rates range from 0.5% to 5.0%.

Oklahoma has very low property taxes, with most homeowners paying less than $1,000 annually. It has no estate or inheritance tax. The only tax that is steeper in Oklahoma than in the rest of the country is the sales tax. It exceeds 9% in most of the state.

Is Social Security taxable in Oklahoma?

No. Any Social Security retirement benefits you receive while living in Oklahoma will not be subject to the state income tax. You can subtract Social Security benefits from your state income taxes by filing Schedule 511-A. Some Social Security benefits may still be taxable federally, however.

Are other forms of retirement income taxable in Oklahoma?

Yes, but taxpayers age 65 or older can claim a $10,000 deduction on all retirement income. Deductible income sources include income from an IRA or a 401(k), a 403(b) or 457(b) and a public or company pension. To use the deduction, you must file Oklahoma’s Schedule 511-A.

The $10,000 retirement income deduction for seniors in Oklahoma applies to the total of all income from any of those sources. If total retirement income (not including Social Security benefits) exceeds $10,000, the remainder is subject to the Oklahoma income tax. The table below shows brackets and rates for the income tax in Oklahoma.

Income Tax Brackets

Single Filers
Oklahoma Taxable IncomeRate
$0 - $1,0000.5%
$1,000 - $2,5001.0%
$2,500 - $3,7502.0%
$3,750 - $4,9003.0%
$4,900 - $7,2004.0%
$7,200+5.0%
Married, Filing Jointly
Oklahoma Taxable IncomeRate
$0 - $2,0000.5%
$2,000 - $5,0001.0%
$5,000 - $7,5002.0%
$7,500 - $9,8003.0%
$9,800 - $12,2004.0%
$12,200+5.0%
Married, Filing Separately
Oklahoma Taxable IncomeRate
$0 - $1,0000.5%
$1,000 - $2,5001.0%
$2,500 - $3,7502.0%
$3,750 - $4,9003.0%
$4,900 - $7,2004.0%
$7,200+5.0%
Head of Household
Oklahoma Taxable IncomeRate
$0 - $2,0000.5%
$1,000 - $5,0001.0%
$2,500 - $7,5002.0%
$3,750 - $9,8003.0%
$4,900 - $12,2004.0%
$12,200+5.0%

How high are property taxes in Oklahoma?

Property taxes in Oklahoma are quite low. The median annual property tax paid in Oklahoma is just $1,076, but the median in most counties is less than $1,000. Those taxes are well below the national median of $2,197. Low property taxes are partially a result of relatively low home prices in Oklahoma, but property tax rates are also fairly low. The average effective rate across the state is 0.89%.

What is the Oklahoma senior valuation freeze?

Seniors in Oklahoma can put a freeze on tax valuation increases if they meet certain income requirements. To be eligible, you must own and occupy your home, be at least 65 years old and have household income no greater than $67,300.

Homeowners who receive the freeze are exempt from any increases in their property value. This can lead to significant savings over time. If, for example, your home value increases by 2% every year, after 10 years your property taxes will be about 22% lower with the freeze than they would without it.

Another form of property tax relief available to seniors and other homeowners in Oklahoma is the homestead exemption. This exemption knocks $1,000 off the taxable value of any owner-occupied property.

Photo credit: ©iStock.com/Jerry Moorman

How high are sales taxes in Oklahoma?

Very high. Although the statewide sales tax rate is just 4.5%, which is below average, local city and county rates can be as high as 6.5%. They average about 4.4%, so a typical sales tax rate you will pay in Oklahoma is close to 8.9%. That ranks as the sixth highest overall sales tax in the country.

And there’s more bad news. Unlike many other states, Oklahoma’s sales tax applies to groceries (although low income households can claim a $40 tax credit to offset part of their food sales tax cost). At the same time, exemptions for clothing and prescription drugs should help lower the sales tax cost for retirees in Oklahoma.

What other Oklahoma taxes should I be concerned about?

Aside from income, property and sales taxes, there are no taxes in Oklahoma that will significantly affect the budgets of most seniors. The state does have a gas tax, along with sin taxes on cigarettes and alcohol, but these are relatively low compared to those of other states (and are already factored into the purchase price of these goods). There is no estate tax in Oklahoma.

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