Tax Burden for Massachusetts Retirees

Posted: March 26, 2012 in Uncategorized
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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. States raise revenue in many ways including sales taxes, excise taxes, license taxes, income taxes, intangible taxes, property taxes, estate taxes and inheritance taxes. Depending on where you live, you may end up paying all of them or just a few. Following are the taxes you can expect to pay if you retire in Massachusetts:
Sales Taxes
State Sales Tax: 6.25% (food; prescription drugs; fuel costs; gas, oil, electricity; clothing costing up to $175, are exempt). Gasoline Tax: 23.5 cents/gallon Diesel Fuel Tax: 23.5 cents/gallon Cigarette Tax: $2.51/pack of 20
Personal Income Taxes
Tax Rate Range: Flat rate of 5.3% of federal adjusted gross income Personal Exemptions: Single – $4,400; Married – $8,800; Dependents – $1,000 Standard Deduction: None Medical/Dental Deduction: Federal amount Federal Income Tax Deduction: None Retirement Income Taxes: Social Security, civil service, state/local government pensions are exempt. Pension income from other state or local governments that do not tax pension income from Massachusetts public employees is exempt from Massachusetts taxable income. For tax tips for seniors and retirees refer to http://www.mass.gov/dor/docs/dor/taxtips/seniors11.pdf Retired Military Pay: Not taxed. 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
Massachusetts does not provide for a general homestead exemption but does have a Homestead Act. The Homestead Act permits a homeowner who occupies a house as his/her principal residence to shield up to $500,000 in equity in that house from creditors. By simply filing a Declaration of Homestead with the appropriate Registry of Deeds, a homeowner may be able to protect his/her residence from the claim of a future creditor. The Homestead Act permits only one spouse to file for the equity protection if each has an ownership interest in the home. The protection offered to the disabled and the elderly is even more comprehensive because it allows a husband and wife who own their own home to each file for the $500,000 equity protection. For details refer to http://www.sec.state.ma.us/rod/rodhom/homidx.htm
Massachusetts also has a circuit breaker program that offers a real estate tax credit for persons age 65 and older. Certain taxpayers may be eligible to claim a refundable credit on their state income taxes for the real estate taxes paid during the tax year on the residential property they own or rent in Massachusetts that is used as their principal residence. If the credit due the taxpayer exceeds the amount of the total income tax payable for the year by the taxpayer, the excess amount of the credit will be refunded to the taxpayer without interest. For tax year 2011, the maximum credit allowed for both renters and homeowners is $980. To be eligible for the credit for the 2011 tax year; the taxpayer or spouse, if married filing jointly, must be 65 years of age or older at the close of the 2011 tax year; the taxpayer must own or rent residential property in Massachusetts and occupy the property as his or her principal residence; the taxpayer’s “total income” cannot exceed $52,000 for a single filer who is not the head of a household, $65,000 for a head of house hold, or $78,000 for taxpayers filing jointly; and for homeowners, the assessed valuation as of January 1, 2011, before residential exemptions but after abatements, of the homeowner’s personal residence cannot exceed $729,000. For details refer to http://www.mass.gov/dor/docs/dor/taxtips/seniors11.pdf.
Inheritance and Estate Taxes
There is no inheritance tax and a limited estate tax on estates valued at $1,000,000 or more.
Information for new residents can be found at http://www.mass.gov/dor/individuals/taxpayer-help-and-resources/tax-guides/guide-for-new-residents/. For further information, visit the Massachusetts Department of Revenue site http://www.mass.gov/dor/. [Source: http://www.retirementliving.com Mar 2012 ++]

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