Many people planning to retire use the presence or absence of a state income tax as a litmus test for a retirement destination. This is a serious miscalculation since higher sales and property taxes can more than offset the lack of a state income tax. The lack of a state income tax doesnt necessarily ensure a low total tax burden. Following are the taxes you can expect to pay if you retire in Arizona:
State Sales Tax: 6.3% on average (food and prescription drugs exempt). Arizona does not have a "Sales tax" but does have a gross receipts tax called the Transaction Privilege Tax. All counties and some cities levy a sales tax that could bring the combined tax rate to 10.7%.
Fuel, Cigarette, & Water Tax:
Gasoline Tax: 19 cents/gallon
Diesel Fuel Tax: 28 cents/gallon
Cigarette Tax: $2.00/pack of 20
Water Use Tax: 65 cents per 1000 gallons of water
Personal Income Taxes:
Tax Rate Range: Low - 2.59%; High 4.54%
Income Brackets: 5 - Lowest $10,00; Highest $150,000. For joint returns, the taxes are twice the tax imposed on half the income.
Personal Exemptions: Single - $2,00; Married - $4,200 with no
dependents, $6,300 with one dependent; Dependents - $2,300; 65 years or older - $2,100
Standard Deduction: Single - $4,521; Married filing jointly - $9,042
Medical/Dental Deduction: Allows deductions for all qualified medical and dental expenses.
Federal Income Tax Deduction: None
Retirement Income Taxes: Social Security and Railroad Retirement benefits are exempt. Up to $2,500 total of military, civil service, and Arizona state/local government pensions are also exempt. All out-of-state government pensions are fully taxed. For frequently asked questions refer to www.revenue.state.az.us/FAQS/individualincomeFAQ.htm#G5
Retired Military Pay: Up to $2,500 of retired pay and/or survivor benefits excluded.
Military Disability Retired Pay: Retirees who entered the military before Sept. 24, 1975, and members receiving disability retirements based on combat injuries or who could receive disability payments from the VA are covered by laws giving disability broad exemption from federal income tax. Most military retired pay based on service-related disabilities also is free from federal income tax, but there is no guarantee of total protection.
VA Disability Dependency and Indemnity Compensation: VA benefits are not taxable because they generally are for disabilities and are not subject to federal or state taxes.
Military SBP/SSBP/RCSBP/RSFPP: Generally subject to state taxes for those states with income tax. Check with state department of revenue office.
Property Taxes - For information on property tax relief for seniors refer to www.tucsonelderlaw.com/Arizona-Property-Tax.htm
There is no state property tax. Tax jurisdictions set tax rates, which may vary considerable from one area to another. Property tax is administered by county assessors. Single homeowners 65 and older who earn less than $3,750 and married couples who earn less than $5,500 are eligible for a tax credit of up to $502. Persons at least 65 years old who have resided in their primary residence for at least two years and have total income not more than four times the Social Security supplemental security income (SSI) benefit rate may apply to the assessor by September 1 to have the valuation of the primary residents and up to 10 acres of adjoining undeveloped land frozen at the full cash value when the application is filed.
Arizona also taxes personal property, which is defined as all types of property except real estate. Taxable personal property includes property used for commercial, industrial and agricultural purposes. Personal property is considered to be movable and not permanently attached to real estate.
In lieu of a personal property tax on automobiles, the state imposes an annual motor vehicle license tax. The fee to register an automobile in Arizona is $8.00 (or $8.25 in metro Phoenix and Tucson, including a 25-cent air quality compliance sticker fee), plus an air quality research fee of $1.50 and a vehicle license tax (VLT). The VLT is based on an assessed value of 60% of the manufacturer's base retail price reduced by 16.25% for each year since the vehicle was first registered in Arizona. As of Dec 1, 2000, the rate is calculated at $2.80 for new vehicles or $2.89 for used ones for each $100 of the assessed value. For example, for a new vehicle that costs $25,000, the first year's assessed value would be $15,000 and the VLT would be $420. The second year the assessed value would be $12,562.00 and the VLT would be $363.06. Call 800-251-5866 for details.
Inheritance and Estate Taxes - There is no inheritance or gift tax and the estate tax does not apply to decedents whose date of death is on or after January 1, 2006.
For further information, visit the Arizona Department of revenue website www.revenue.state.az.us
For questions about moving to Arizona refer to www.azdor.gov/FAQS/movingfaqs.htm
. For other tax questions, call 602-255-3381.
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