Overview of Utah Retirement Tax Friendliness
Utah taxes Social Security retirement benefits. Other types of retirement income, such as pension income and income from retirement accounts, are also subject to the state’s 4.95% flat income tax. However, seniors can claim a small credit against those taxes.
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- 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.
Utah Retirement Taxes
Plentiful sunshine and breathtaking natural beauty are among the things retirees can expect to enjoy in the state of Utah. It is one of three states with at least five National Parks (along with California and Alaska). It also has some of the best skiing in the world.
Utah’s retirement taxes are a different story, however. The Beehive State is one of just a handful that taxes Social Security retirement benefits. Other types of retirement income, such as pension income and income from retirement accounts, are also subject to the state’s 4.95% flat income tax. The state does offer seniors a relatively minor credit against these taxes, though.
Not all of Utah’s taxes are quite so hard on retirees. The state’s property taxes and sales taxes are below the national average. However, the overall cost of living in Utah is still slightly higher than average in the U.S.
A financial advisor in Utah 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 Utah tax-friendly for retirees?
Utah is moderately tax-friendly for retirees. On the one hand, the retirement income taxes are unfavorable when compared to other states. In fact, Social Security is taxable in Utah, as are all other types of retirement income. Within certain income limits, Utah seniors can claim a tax credit of up to $450 per person against that income.
On the other hand, property taxes and sales taxes in Utah are fairly low. The average effective property tax rate is 0.58%, and the average sales tax rate is 7.18%. Additionally, Utah has no estate or inheritance tax.
Is Social Security taxable in Utah?
Utah does not exempt Social Security retirement benefits from taxation, so expect to pay state taxes on any Social Security income that's included in your Adjusted Gross Income (AGI). The Utah income tax rate is 4.95%.
Are other forms of retirement income taxable in Utah?
Income from any retirement account, such as a 401(k), Simple IRA or 403(b), is taxable in Utah. Pension income is also taxable. However, Utah residents with pension income can claim a tax credit of up to $450 to offset their tax liability.
The credit also diminishes as income increases. It falls by 2.5 cents for every additional dollar of income over $25,000 for single filers or $32,000 for joint filers.
How high are property taxes in Utah?
Utah’s property taxes are very low. The average effective property tax rate in the Beehive State is just 0.58%. That means a typical Utah homeowner can expect to pay about $580 in property taxes each year for every $100,000 in home value.
Note that home values in Utah vary significantly depending on where you settle down. In Summit County, which contains Park City, the median home value is about $598,900 and the median property tax payment is $2,469 per homeowner. In Emery County, home values are much lower at a median of $139,500 and most homeowners pay less than $1,000 annually in property taxes.
What is the Utah property tax circuit breaker?
All homeowners in Utah can claim a homestead exemption which exempts 45% of a home’s value from taxation. For some seniors, the property tax circuit breaker can also significantly limit property tax bills.
The Utah Circuit Breaker is available to senior homeowners who are at least 66 years old and whose household income is less than $34,167 in 2019. Eligible seniors receive property tax abatement of up to $1,043 per year, depending on their level of income.
How high are sales taxes in Utah?
Including the base sales tax rate of 6.10% and local rates that average about 1.08%, the total average rate in Utah is 7.18%. That ranks as the 20th-highest rate in the U.S.
There are a number of sales tax exemptions and reductions in Utah that should help retirees reduce their overall sales tax bill. Groceries are taxed at a statewide rate of 3%. Prescription drugs are fully exempt, as are all types of medical equipment, such as oxygen tanks and wheelchairs.
What other Utah taxes should I be concerned about?
Utah does not have an estate tax or inheritance tax. It does have sin taxes on alcohol and tobacco, though. Its alcohol tax is especially steep, adding up to around $12 per gallon of liquor.
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.
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