California Ranks in Bottom Ten for Retirees
Each year Kiplinger ranks all the states and D.C. for the “friendliness” of state tax policies for retirees. This analysis factors in things like income tax, sales tax, property tax, inheritance tax, and other policies set up to help support retirees. California continues to rank very low in “friendliness” when it comes to taxes which is probably not much of a surprise for those of us who live here.
California has consistently been near the bottom since Kiplinger started their annual analysis. Coming in as the seventh worst this year, California is plagued with everything from the highest income tax bracket to the some of the highest sales taxes in the country. Below is a quick breakdown of what our taxes our and a link to see other comparisons yourself.
State Sales Tax
The state level for sales tax is a whopping 7.5% across the board with the ability for counties to add their own sales tax in addition beyond that. This can be as much as 2.5% in addition, making the max a 10% sales tax on purchases. The average is about 8.5% statewide.
California boasts one of the most progressive tax brackets meaning the lowest earners pay in the range of 1% on income but it quickly rises to as high as 13.3% for top earners. This is easily the highest rate in the country and is of course in combination with federal income taxes as well. Other than Social Security, there are no exemptions or reductions for retirees in lowering their income taxes. Only railroad retirement benefits (a quirk for sure) are exempted.
A while ago Prop 13 was passed to help limit property taxes to 1% of the assessed value of a property here in California. Generally, that will only change when purchasing a home or any major new construction on the property. While limited, it can still be a major burden for retirees as median home prices have crossed over $400,000 in the state.
Most states choose to bring in their tax revenue by relying on one of the three types of taxes above but California continues to use all three heavily. While the burden is high on retirees, it doesn’t make it impossible to retire here, it just means that extra planning may be needed to plan ahead. If you want to see how the other states rank, see the link below. And as always, if you need any help with your figuring out your retirement goals, never hesitate to reach out.