Introduced on January 25, 2024, the “You Earned It, You Keep It” Act H.R. 7084 aims to enhance the financial stability of seniors in America. Proposing to eliminate all federal taxes on Social Security benefits starting in 2025, this move is one of the many long bills that have made efforts to eliminate taxes on Social Security in vain. The tax proposes that the Social Security payroll tax cap should be increased for high-income earners to back the tax elimination. This would make those who earn more contribute more to Social Security funds, ensuring its health and financial stability. An analysis of the act suggests that this would allow Social Security funds to remain solvent through 2054, which are otherwise feared to be depleted by 2033.
So who's going to benefit the most from the act? Apparently, its the higher-earning beneficiaries who otherwise currently pay tax on as much as 85% of their Social Security income. Those who earn limited income (less than $25,000) are already not paying taxes on their benefits, so the act doesn't make much difference to them anyway. Nevertheless, the high-earning class is also going to be the one required to pay more taxes during their working years. The potential passage of this act, whether it occurs this year or not, emerges as a potential solution to address the looming depletion of Social Security funds, a concern that has plagued both current and future retirees with apprehension.
Mike Townsend—managing director of legislative and regulatory affairs at The Charles Schwab Corporation (NYSE:SCHW), discusses several possible fixes that can be implemented. Some of the fixes that Townsend discusses include extending the full retirement age, raising the payroll tax rate, and increasing the amount of income subject to the payroll tax.
“The closer the government gets to the insolvency deadlines, the less time it has to raise the necessary funds. Congress can continue to kick the can down the road, but the math is only going to get more difficult”.
Nevertheless, retirees looking at the big picture when it comes to retirement will only induce anxiety in themselves. Therefore, the best course of action for those who have already retired or are on their way to retirement is to make the best of the savings that they already have. Hayden Adams, director of tax and financial planning at the The Charles Schwab Corporation (NYSE:SCHW) Center for Financial Research, notes how the tax implications for each state can be profound. Still, taxes aren't the only factor that one must consider before making a big decision on relocation. Seniors should also be paying careful consideration to factors such as health and climate, aspects that will largely impact them as they become weak and old. Staying close to family, craving relationships, and being in proximity to quality medical facilities becomes an absolute necessity as one becomes older in life.
Nevertheless, retirees still pay prime importance to states that don’t tax retirement income, particularly focusing on ones that don’t tax Social Security benefits. Complemented by affordable costs of living, they can be some of the best states to retire on a fixed income. Another one of the biggest concerns for retirees are taxes. You can opt for a cheaper brand, and shop at cheaper stores, but you can't evade taxes. One big tax retirees are often scared of is property tax. These taxes vary depending on where you live, and can even increase alongside home values.
“This is of particular concern to those on a fixed income. Will you be able to keep up with property taxes as your home value increases? Typically, higher property values mean higher property taxes."
With that said, some seniors may take a step ahead and see which states are the best when it comes to property taxes.
Methodology
To compile the list of the 10 most tax-friendly states for retirees: some with no property tax, we used our list of top tax-friendly states for retirees in 2024. Next, we gave an extra point to each state offering property tax exemptions/deferrals/deductions to seniors based on authentic sources such as their specific Department of Revenue. The Average Combined State sales tax rate is from Tax Foundation, and the average effective property tax rate is from Property Shark. Points were added and places were ranked in an ascending order from the lowest to the highest scores.
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Here are the Most Tax-Friendly States for Retirees: Some with No Property Tax:
10. Virginia
Insider Monkey Score: 40
Combined State Sales Tax Rate: 5.771%
Average Effective Property Tax Rate: 0.76%
Tax Friendliness: Tax Friendly
Cost of Living Index: 101.9
The state of Virginia is considered a “tax-friendly” state for retirees. Social Security retirement benefits are not taxed in the state. Moreover, other types of retirement income such as retirement account withdrawals and pension incomes are deductible up to $12,000 for seniors. Both property taxes and sales taxes are lower than the national averages, standing at 0.76% and 5.771% respectively. The Commonwealth of Virginia doesn’t offer property tax relief programs. However, cities, counties, and towns within the state do offer certain property tax relief to homeowners aged 65 and above. In some counties, low-income seniors may even be allowed to be entirely exempted from property taxes.
9. Georgia
Insider Monkey Score: 41
Combined State Sales Tax Rate: 7.384%
Average Effective Property Tax Rate: 0.83%
Tax Friendliness: Very Tax Friendly
Cost of Living Index: 90.8
Next on our list of most tax-friendly states for retirees: some with no property tax, is the state of Georgia. Social Security retirement benefits aren't taxed in the state. Moreover, the state also offers seniors a hefty retirement income exclusion. Those taxpayers who are over the age of 62 may exclude up to $35,000 of their retirement income, while those who are 65 and above can exclude up to $65,000 of their retirement income. The State of Georgia also offers homestead exemptions to all qualifying homeowners. Moreover, individuals who are aged 65 and above may also claim a $4,000 exemption from all county ad valorem taxes provided the income of that individual and their spouse doesn't exceed $10,000 for the prior year.
8. Idaho
Insider Monkey Score: 43
Combined State Sales Tax Rate: 6.026%
Average Effective Property Tax Rate: 0.56%
Tax Friendliness: Tax Friendly
Cost of Living Index: 98.6
Idaho is another tax-friendly state for seniors to retire to. Social Security benefits aren’t taxed in the state. However, other forms of retirement income are taxed at normal income tax levels. What makes this state overall tax-friendly for retirees is that it has low property and sales taxes. There are limited deductions for certain pensions in the state. The cost of living here is below the national average, and the property tax rates are low as well. Senior Idaho residents and homeowners can also reduce their property taxes by $250 to $1,500 on their home if their total 2023 income, after deducting medical expenses, was $37,000 or less. Moreover, they should be 65 or older and have owned and lived in a home in Idaho that was their primary residence before April 15, 2024.
7. Florida
Insider Monkey Score: 44
Combined State Sales Tax Rate: 7.002%
Average Effective Property Tax Rate: 0.82%
Tax Friendliness: Very Tax Friendly
Cost of Living Index: 100.7
No list of most tax-friendly states for retirees is complete without the Sunshine State of Florida. With a cost of living close to the national average and no tax on retirement income, Florida seems like an ideal retirement haven for many. The average effective property tax rate is less than the national average as well. However, seniors aged 65 and above can avail certain tax exemptions. According to the Florida Department of Revenue, certain property tax benefits are available to seniors provided they meet certain requirements. In some counties of the state, seniors can avail of an additional homestead exemption of up to $50,000.
6. South Dakota
Insider Monkey Score: 46
Combined State Sales Tax Rate: 6.111%
Average Effective Property Tax Rate: 1.14%
Tax Friendliness: Very Tax Friendly
Cost of Living Index: 92.4
South Dakota has been making rounds on the internet after our recent study ranked it as the best state to retire in the US in 2024. The cost of living in the state is an estimated 7.6% lower than the national average, and the state is overall very tax-friendly for retirees. This is because there is no state income tax in South Dakota, and consequently, no income tax on Social Security benefits, distributions from retirement accounts, or pension benefits whether public or private. This state shines for being tops in taxes, cost of living, and health. However, what makes it even more exceptional for senior citizens is that the state offers sales and property tax refunds for seniors and disabled citizens. According to the South Dakota Department of Revenue, seniors can receive a yearly refund of sales or property taxes if they are eligible. Applications are accepted from May 1 to July 1.
