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Oregon Retirement Tax Friendliness

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Overview of Oregon Retirement Tax Friendliness

Oregon exempts Social Security retirement benefits from the state income tax. Oregon taxes income from retirement accounts like a 401(k) or an IRA at the full state income tax rates. It also has no sales tax, along with property taxes that are slightly lower than average.

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Oregon Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

From the coast to the Cascade Mountains to the wine regions scattered throughout the state, there are many great places for a retirement in Oregon. Recreational opportunities abound in the Beaver State, but the cost of an Oregon retirement may be too high for some seniors.

Oregon has a cost of living that ranks as the sixth highest in the nation and a number of retirement tax policies that could put a dent in the budgets of some retirees. Most notably, Oregon taxes income from retirement accounts like a 401(k) or an IRA at the full state income tax rates, which range from 5% to9.9%.

That being said, there are a number of other retirement tax policies in Oregon that will benefit many retirees. The state fully exempts Social Security retirement benefits from taxation. It also has no sales tax.

Is Oregon tax-friendly for retirees?

Oregon is moderately tax-friendly for retirees. As mentioned above, it exempts Social Security retirement benefits from the state income tax. It also has no sales tax, along with property taxes that are slightly lower than average.

Those are both positives for retirement taxes in Oregon, but there are also some negatives. Unlike many other states, Oregon does not exempt or allow deductions on income from retirement accounts. The state also taxes pension income, although seniors with income below a certain threshold can claim a 9%credit on that income.

Is Social Security taxable in Oregon?

No. Social Security retirement benefits are not taxed, which means retirees who rely entirely on Social Security for their retirement income will not have to pay any taxes on that income. Federal taxes may be due on Social Security for retirees with multiple income sources.

Are other forms of retirement income taxable in Oregon?

Yes. Income from a 401(k), an IRA or any other retirement account is taxable at rates ranging from 5% to 9.9%. See the full Oregon income tax rate tables below.

Pension income is also taxable, but some seniors may be able to claim a credit on that income. The credit is available to seniors with household income less than $22,500 (or $45,000 for joint filers) and Social Security income less than $7,500 (or $15,000 for joint filers). The credit is calculated according to a fairly complicated formula, but it is equal to no more than 9% of your pension income.

Income Tax Brackets

Single Filers
Oregon Taxable IncomeRate
$0 - $3,3505.00%
$3,350 - $8,4007.00%
$8,400 - $125,0009.00%
$125,000+9.90%
Married, Filing Jointly
Oregon Taxable IncomeRate
$0 - $6,7005.00%
$6,700 - $16,8007.00%
$16,800 - $250,0009.00%
$250,000+9.90%
Married, Filing Separately
Oregon Taxable IncomeRate
$0 - $3,3505.00%
$3,350 - $8,4007.00%
$8,400 - $125,0009.00%
$125,000+9.90%
Head of Household
Oregon Taxable IncomeRate
$0 - $6,7005.00%
$6,700 - $16,8007.00%
$16,800 - $250,0009.00%
$250,000+9.90%

How high are property taxes in Oregon?

The average effective property tax rate in Oregon is slightly lower than the national average at 1.04%. However, because home prices in Oregon tend to be fairly high, most Oregon homeowners spend more than $2,400 annually on property taxes. In fact, one of the main reasons that Oregon’s cost of living is quite high is that housing costs in the state are 66% higher than the national average.

What is the Oregon property tax deferral for disabled and senior citizens?

If you are at least 62 years old and own your home in Oregon, you may be able to defer payment of property taxes until you sell your house. To qualify you must have household income of no more than $43,000 (in 2015) and a net worth of no more than $500,000. You must have owned and occupied your home for at least five years prior to application.

If you do qualify, the State of Oregon will pay all county property taxes for your house. You will still have to pay any school district and municipal taxes. Additionally, the taxes you defer will accrue interest, which you will have to pay back at the time you sell your home.

Photo credit: ©iStock.com/demerzel21

How high are sales taxes in Oregon?

There is no sales tax in Oregon. For retirees living on a fixed budget, this can add up to hundreds of dollars of savings every year as compared with other states.

What other Oregon taxes should I be concerned about?

Unlike most other states, Oregon has its own estate tax. The exemption amount on that tax is $1 million, which means many estates that are not subject to the federal tax may be taxed in Oregon. (The federal exemption is over $5 million.)

For estates exceeding that $1 million exemption, estate tax rates in Oregon begin at 10% and gradually increase up to a top rate of 16%. The rate on any portion of an estate valued over $9.5 million will be 16%.

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 2015 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration

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