State and Local Tax Burden If You Retire in Delaware

Delaware, with its proximity to major metropolitan areas, access to the Atlantic, relaxed lifestyle in the Delmarva Peninsula, and its medium-sized cities and towns can make an attractive retirement destination. And Delaware is a tax-friendly state for retirees. According to the Tax Foundation, the overall state and local tax burden in Delaware was 9.6% of income in 2009, slightly below the national average of 9.8%. There is a state income tax but certain retirement income is exempt. Property taxes are low, with exemptions for qualifying seniors, and Delaware does not impose a state sales tax.

Income tax

Delaware has a state income tax with progressive rates from 2.2% to 5.55% for income under $60,000 and 6.95% for income of $60,000 or more. You can claim an additional standard deduction of $2,500 in Delaware if you and/or your spouse are 65 years of age or older or blind and you do not itemize.

Social Security and Railroad Retirement benefits are not subject to state income tax in Delaware. If you are 60 or older you can deduct up to $12,500 or your pension income and eligible retirement income including dividends, interest, capital gains, distributions from qualified retirement plans, and rental income. If you are under age 60, you can deduct up to $2,000 of pension income.

Property taxes

Property taxes in Delaware are among the lowest in the country. According to the Tax Foundation Delaware ranked 47th among the states in 2009 in terms of property taxes as a percentage of median home value at 0.43%. The Delaware Economic Development Office provides a list of property tax rates by locality.

If you are 65 or older, you can qualify for a credit against the regular school property taxes on your primary residence in Delaware. The credit is for 50 percent of the taxes up to a maximum of $500.

In Kent County, Delaware, if you are age 65 or older or totally disabled you can qualify for a reduction in your taxable assessment. To qualify for this exemption your annual income must not be more than $12,700 if you are single, or $22,000 if married. Income for these purposes does not include social security, railroad retirement or disability income.

In Sussex County you can claim an exemption of $12,500 of the assessed value of your home for school and county property taxes if you are age 65 or older or totally disabled. Your income excluding social security must not be more than $6,000 a year if you are single and $7,500 if married. You could also qualify for a property tax subsidy in Sussex County if your annual income is not more than $15,800 or $20,000 if you are married. This subsidy is an exemption of $16,000 of assessed value for the county property tax.

In New Castle County you can qualify for an exemption of up to $32,000 of assessed value if you are over age 65 or older or disabled. The assessed value of your home cannot be more than $125,000 and your annual income excluding social security and railroad retirement must be less than $15,000 or $19,000 if married filing jointly.

Sources:
Delaware Resident Individual Income Tax Return - Delaware Division of Revenue
Delaware Property Tax Rates '" Delaware Economic Development Office
The Facts on New Delaware's Tax Climate '" Tax Foundation
Frequently Asked Questions '" Kent County Assessment Office
Guide to Delaware Retirement Communities and Towns '" Top Retirements
Property Taxes on Owner-Occupied Housing by State, 2004 '" 2009 '" Tax Foundation
School Property Tax Relief for Individuals Age 65 or Over '" Delaware Department of Finance
Sussex County Council Property Tax Assistance Programs '" Sussex County, Delaware
Tax Assessment / Exemptions '" New Castle County, Delaware