This week, the personal-finance publication Kiplinger’s released its list of the most — and least — tax-friendly states in America. To draw its conclusions, it used a hypothetical couple with two kids and $150,000 in income a year plus $10,000 in dividend income, and then looked at the income-, property- and sales-tax burden that family would face.
Illinois took the No. 1 spot on the list, thanks in large part to its high property taxes. The Land of Lincoln was followed by Connecticut and New York, both of which have pretty high-income taxes.5. New JerseyMeanwhile, the most tax-friendly states were Wyoming, Nevada and Tennessee. The first two don’t levy an income tax; Tennessee has an income tax, but it only applies to interest and dividends and not to salaries and other wages.6.
Mengle added that these kinds of analyses are often useful to people looking to relocate, such as in retirement. He said retirees should “pay attention to what type of income they are going to be relying on in their golden years.” That’s because states can tax income, Social Security, money from an IRA or 401, rental-property income and other sorts of income differently.
For example, Social Security income is not taxed in most states, but 13 states do tax it: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. Even then, they don’t all tax it the same. Retirees may also want to consider inheritance and estate taxes in the places they might consider moving to. Right now, 13 states and Washington, D.C., have an estate tax, and six have an inheritance tax. This NerdWallet guide can walk you through that.More from MarketWatch Retirement Catey Hill Catey Hill is MarketWatch's senior content strategist. She writes about how to upgrade your life, and helps readers find great deals on products and services. Follow her on Twitter @CateyHill.
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