Overview of Washington Retirement Tax Friendliness
Washington State has no income tax. That means income from Social Security, pensions and retirement accounts is all tax-free in Washington. Sales tax rates are quite high and property tax rates are about average.
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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.
Washington State Retirement Taxes
The Evergreen State is an increasingly popular retirement choice for seniors on the West Coast. Natural wonders like Mount Rainier, Olympic National Park and the San Juan Islands are a big draw for those seeking an active lifestyle. The state’s tax system is just as attractive for many seniors.
For starters, Washington State has no income tax. That means income from Social Security, pensions and retirement accounts all avoids taxes. It also means that those who plan to work part-time during retirement can likewise do so tax-free. Other taxes that will affect seniors in Washington include the state’s sales taxes, which are quite high, and property taxes, which are about average on a nationwide basis.
A financial advisor in Washington State 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 Washington State tax-friendly for retirees?
Washington State is one of seven states that do not have an income tax. That means any income from Social Security, a pension or a retirement account is tax-free at the state level. Property tax rates in Washington State are a bit below average.
That being said, some taxes in Washington State are quite high. The overall average sales tax in Washington is the fourth-highest in the U.S. Washington also has its own estate tax with a fairly low exemption.
Is Social Security taxable in Washington State?
Social Security retirement benefits are not taxed at the state or local level in Washington State.
Are other forms of retirement income taxable in Washington State?
Since Washington State does not have an income tax, no forms of retirement income are taxable. While retirees in many other states have to pay state income taxes on 401(k), IRA and pension income, retirees in Washington do not. Federal taxes may still be due on those income sources, however.
How high are property taxes in Washington State?
Property tax rates in Washington State are slightly below the national average. The average effective rate in Washington is 0.93%, which means homeowners can expect to pay about $930 in annual property taxes for every $100,000 in home value.
While housing in Washington is generally affordable, in some parts of the state it can be very expensive. This is especially true in the Seattle area. In King County, the median home value is over $493,500 and many homeowners pay more than $4,600 annually in property taxes.
What is the Washington State property tax exemption for seniors?
Many senior citizens in Washington State are eligible for a program that reduces their property taxes. To qualify for the property tax exemption program, you must be either 61 years old or older, be unable to work because of a disability or be a veteran who is receiving disability compensation from the Department of Veterans Affairs (VA). You also must own and live in your home, and your household income must be lower than your county's income threshold. These thresholds range from $40,000 in most of the state to $58,423 in King County.
If you meet these criteria, you will qualify for the exemption, which has two main benefits. First, your assessed value is frozen as of your application year so that any subsequent increases in value will not affect your property tax bill. Second, if your income meets certain requirements, some portion of your home value will be exempt up to a maximum of $70,000. The exact amount of the exemption depends on your income and your home value.
How high are sales taxes in Washington State?
Since Washington State does not have an income tax, it relies more heavily on the sales tax for revenue than many other states. The statewide sales tax is 6.5%, ninth-highest in the U.S. In addition to that state rate, cities and counties collect their own taxes that can be as high as 4%. Overall, expect to pay an average sales tax of about 9.23% in Washington.
Sales tax exemptions in Washington should help seniors and retirees lower the overall burden of the state’s high sales taxes. Prescription drugs are exempt from sales taxes, as are groceries and newspapers.
What other Washington taxes should I be concerned about?
Washington has its own estate tax with rates as high as 20%. The exclusion is $2.193 million. That amount is subtracted from the gross estate to calculate the taxable estate, so no taxes will be owed on an estate with a value below the exclusion.
Above the exclusion, rates begin at 10% and rise gradually to 20% for the portion of any taxable estate valued at greater than $9 million.
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