As you know, tax policies vary state to state. In some states, for example, there is not state income tax. Funding for schools, roads, police and fire protection, the courts and the prison systems come instead from property and sales taxes. In other states, revenues are raised through a combination of income, property, energy, and sales taxes. The bottom line is that each state must find a way to pay for the services it provides, but some states are just more efficient than others.
According to Retirement Living.com, the states with the highest composite taxes are:
- New Jersey
- New York
- Rhode Island
- New Hampshire
- South Dakota
Many Californians, for example, have moved to Nevada both to save money on taxes and to be able to afford larger homes. Florida, over the past 50 years, has become the destination of choice for many retirees from the Northeast who wanted to escape the bitter winters and high taxes.
So, when narrowing down your retirement destinations list, contact the state tax department to make sure you understand how much your military retirement benefits will be taxed.
Many states do not tax military retirement benefits. Some of them are on the "Top 10" most expensive list above. They are Hawaii, New Jersey, and Wisconsin. You may find that after taking income taxes out of their equation that these states actually become more attractive for military retirees. ALOHA!