Taxes for Retirees in Arizona

When it comes to what you'll pay in taxes, Arizona is a great spot to retire, especially if your earnings are fixed or come exclusively from Social Security. Although Arizona does have a state income tax, it is quite low in comparison to other states. Additionally, for retirees, Social Security benefits and some retirement income is completely exempt from taxation in the "Grand Canyon State."

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"Social Security benefits are exempt, as is up to $2,500 of some other retirement income. The state's top income tax rate doesn't kick in until income hits $150,000 ($300,000 for married couples)," Kiplinger reports. The publication named Arizona one of the "Top 10 Tax-friendly States for Retirees" in the United States.

Arizona's state income tax is between 2.59 percent and 4.54 percent, which is much lower than the national average. The state sales tax, set at 5.6 percent, is also lower than the U.S. average, but Kiplinger cautions "Arizona's statewide sales tax can climb to 12 percent when combined with local sales taxes."

That said food purchased for consumption in your home and prescription drugs are exempt from the state sales tax. Furthermore, after you die, there is no estate or inheritance tax beyond what the federal government mandates (some states impose their own additional taxes).

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Property tax rates vary throughout the state, but according to the Tax Foundation, "Arizona has some of the lowest property taxes in the U.S. The median property tax on a $187,700 median-valued home is $1,356."

Lower taxes lead to a lower overall cost of living, which in Arizona is estimated at about 5 percent below the national average. "One big reason we think you should consider Arizona for retirement is taxes. When living on fixed incomes, it's important you make sure you are living in a state where your money will last and the taxes are in your favor. Arizona is one of the most tax-friendly states and they don't tax your Social Security check," Moira McGarvey reported for the Huffington Post.

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