The Bottom Line
NOT TAX-FRIENDLY
One of Kiplinger's top ten least tax-friendly states for retirees, the Golden State is a retiree's tax nightmare. Although Social Security benefits are exempt, all other forms of retirement income are fully taxed. California residents pay the highest income taxes in the U.S. The statewide sales tax is high, too. Real estate is assessed at 100% of market value.
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| How to Live Tax-Free in Retirement |
State Sales Tax
The state sales tax increased to 7.5%, from 7.25%, as of January 2013. (The rate hike is temporary and is set to expire at the end of 2016.) Rates are higher in cities and counties with special taxing districts; with the addition of local taxes, the total can reach 10% in some cities. (Food and prescription drugs are exempt.)
Income Tax Range
Low: 1% (on up to $14,910 of taxable income for married joint filers and up to $7,455 for those filing individually)
High: 13.3% (on more than $1 million for married joint filers and for those filing individually)
High: 13.3% (on more than $1 million for married joint filers and for those filing individually)
Social Security
Benefits are not taxed.
Exemptions for Other Retirement Income
Railroad Retirement benefits are exempt. All private, local, state and federal pensions are fully taxed. There is a 2.5% state penalty on early distributions from retirement plans, annuities and IRAs.
Property Taxes
Property is assessed at 100% of market value. The maximum amount of tax on real estate is limited to 1% of assessed value. Note, though, that property is generally only reappraised when it changes ownership or has new construction (a property’s assessed value is typically equal to its purchase price adjusted upward each year by 2%). Under the homestead program, the first $7,000 of the full value of a homeowner's dwelling is exempt. Median property tax on the state's median home value of $384,200 is $2,839, according to the Tax Foundation.
Tax breaks for seniors: The Homeowner Assistance program, which provided property-tax relief to people who were blind, disabled or at least 62 years old and met certain minimum annual income thresholds, has been halted and has not been funded by the state in recent years.
Tax breaks for seniors: The Homeowner Assistance program, which provided property-tax relief to people who were blind, disabled or at least 62 years old and met certain minimum annual income thresholds, has been halted and has not been funded by the state in recent years.
Inheritance and
Estate Taxes
There is no inheritance tax or estate tax.
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