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 doesn’t necessarily ensure a low total tax burden. Following are the taxes you can expect to pay if you retire in Indiana:
State Sales Tax: 7% (food and prescription drugs exempt)
Fuel & Cigarette Tax:
• Gasoline Tax: 29.7 cents/gallon
• Diesel Fuel Tax: * 41.5 cents/gallon (Includes local county taxes)
• Cigarette Tax: 99.5 cents/pack of 20
Personal Income Taxes
Tax Rate Range: Flat rate of 3.4% of federal adjusted gross income. Many counties also collect income tax. Refer to www.in.gov/dor/3810.htm
Personal Exemptions: Single - $1,000; Married - $2,000; Dependents - $1,500; $1,000 for taxpayer and/or spouse if age 65 or over; $1,000 for taxpayer and/or spouse if blind; $500 additional exemption for each individual age 65 or over if federal adjusted gross income is less than $40,000.
Standard Deduction: None
Medical/Dental Deduction: None.
Federal Income Tax Deduction: None.
Retirement Income Taxes: Social Security is exempt. Taxpayers 60 and older may exclude $2,000 from military pensions minus the amount of Social Security and Railroad Benefits received. Taxpayers age 62 and older may deduct from their adjusted gross income $2,000 from a federal civil service annuity. Out-of-state pensions are fully taxed. Homeowners can deduct up to $2,500 from their income taxes for property taxes on their residence.
Retired Military Pay: Military retirees who are age 60 are entitled to deduct up to $2,000 of military or survivor benefits.
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.
In Indiana property taxes are administered at the local level with oversight by the Indiana Department of Local Government Finance. Refer to www.in.gov/dlgf/4988.htm.They
are imposed on both real and personal property. Property, which is assessed at 100% of its true value, is subject to taxation by a variety of taxing units (schools, counties, townships, cities and towns, libraries, etc.) making the total tax rate the sum of the tax rates imposed by all of the taxing units in which the property is located. Homeowners are eligible for a credit against the property taxes that they pay on their homestead. The amount of credit to which the individual is entitled equals 10% of the individual's property tax liability, which is attributable to the homestead during the calendar year. A taxpayer entitled to receive a homestead credit is also entitled to a standard deduction from the assessed value of the homestead. The deduction is the lesser of one-half of the assessed value of the real property or $35,000. Homeowners 65 and older who earn $25,000 or less are eligible to receive a tax reduction on property with an assessed value of $144,000 or less and the individual received no other property tax deductions except for mortgage, standard, and fertilizer storage deductions. A surviving spouse is entitled to the deduction if they are at least 60 years old. The amount of the deduction is the lesser of one-half of the assessed value of the real property or $12,480. Call 317-232-3777 or refer to www.in.gov/dlgf
A circuit breaker program is aimed at helping residents by ensuring they don't pay more than 2% of their property value in taxes. The goal is to provide predictability in tax bills and equity among Hoosier taxpayers. It became mandatory statewide for residential property in 2007. Homeowners will not see the potential impact until their 2008 tax bill. The circuit breaker expands to include all property types in 2009. Taxpayers will not see the impact of the expansion until their 2010 tax bill.
Inheritance and Estate Taxes - The inheritance tax (Class A) ranges from 1% to 10% based on fair market value of property transferred at death. The estate tax is the amount by which federal credit exceeds inheritance taxes paid to all states. Refer to www.in.gov/dor/3807.htm
For further information, visit the Indiana Department of Revenue site www.in.gov/dor/index.htm
. [Source: www.retirementliving.com
Oct 09 ++]