Overview of District of Columbia Retirement Tax Friendliness
The District of Columbia exempts all Social Security retirement benefits from the city income tax and provides a deduction against government pension income. At the same time, it taxes most other income from retirement accounts.
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District of Columbia Retirement Taxes
Thinking about a retirement in the nation’s capital? Washington, D.C. has much to offer in the way of culture and history, with attractions such as the National Museum of Natural History, the Smithsonian and the National World War II Memorial.
As compared with the tax systems in the 50 states, Washington, D.C. is moderately tax-friendly for retirees. It helps them out by exempting all Social Security retirement benefits from the city income tax and providing a deduction against government pension income. Many other types of retirement income are taxable, though.
As discussed in further detail below, the District of Columbia has relatively low sales and property taxes. However, these are offset by the city’s high cost of living.
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Is Washington, D.C. tax-friendly for retirees?
Washington, D.C. is moderately tax-friendly for retirees. While it provides some exemptions and deductions to help retirees reduce their overall tax burden, it taxes certain things that are not taxed in many other parts of the country. For example, the District grants a full exemption of Social Security retirement benefits, but taxes private pension income and distributions from retirement accounts as regular income.
D.C.’s sales tax rates and property tax rates are quite low, but high prices on goods and real estate mean residents of D.C. pay high amounts in dollar terms. The city also has a fairly hefty estate tax.
Is Social Security taxable in Washington, D.C.?
Washington, D.C. fully exempts Social Security retirement benefits from its income tax. Even Social Security income that is taxed at the federal level is not taxed in D.C.
Are other forms of retirement income taxable in Washington, D.C.?
Income from a pension, 401(k), IRA or any other type of retirement account is taxable in the District of Columbia at rates ranging from 4% to 10.75%. Residents can deduct up to $3,000 of this income from taxes, though.
How high are property taxes in Washington, D.C.?
Property tax rates in the District of Columbia are low, but property tax bills can be quite high. This is because of the high home values in Washington, D.C, as the city’s median home value is almost $669,900.
Even at the city’s average effective property tax rate of 0.55%, that still implies that the typical homeowner spends about $3,699 a year on property taxes. However, seniors who own a home in the District can cut down on that cost significantly by taking advantage of the city’s tax relief programs, described below.
What is the D.C. senior citizen or disabled property owner tax relief program?
Washington, D.C. provides an exemption of 50% to senior homeowners and homeowners who are disabled. To qualify you must be at least 65 years old or disabled. The total income of everyone who lives at the property must be lower than $139,900.
You must also meet all requirements for the Washington, D.C. homestead deduction. The homestead deduction reduces assessed value by up to $78,700. Eligible homeowners must occupy the home they own. It must be their principal residence. It can have no more than five units.
Combined, these two programs can save most seniors significant money on their property tax bills.
How high are sales taxes in Washington, D.C.?
The sales tax rate in Washington, D.C. is 6%. Compared with the combined state and local rates in U.S. states, that would rank as the 13th-lowest. Furthermore, some exemptions help to reduce the overall burden of sales taxes on seniors. Medicine is exempt from sales tax, including both prescription and over-the-counter drugs. Groceries are also exempt.
What other Washington, D.C. taxes should I be concerned about?
Washington, D.C. has an estate tax that will affect a greater percentage of estates than the federal tax. That’s because its exemption amount in 2022 is $4,254,800 per individual, which means D.C. estates valued over that amount face tax rates of up to 16%. In comparison, the federal exemption is $12.06 million for 2022 and $12.92 million for 2023.