Utah Retirement Tax Friendliness

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 4.55% 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.

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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 0.55%, and the average sales tax rate is 7.26%. The state sales tax is 6.10%. 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 4.55%.

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 married people filing separately, $30,000 for single filers and $50,000 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 0.55%. That means a typical Utah homeowner can expect to pay about $550 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 $895,100 and the median property tax is $3,040. The median property value in the state, though, is a much more modest $408,500.

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 $40,840. Eligible seniors receive property tax abatement of up to $1,259 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 1.16%, the total average rate in Utah is 7.26%. The maximum rate in the state is 10.3%, which is quite high. 

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 $16 per gallon of liquor.