Maine, with its 3,500 miles of shoreline, islands, lakes, and forests to explore, and its four seasons, offers abundant outdoor opportunities for retirees. Retirees looking for a quiet life can find it in Maine, with its small population. And there are larger towns and cities for retirees who prefer a more urban setting. Maine has a relatively high overall state and local tax burden, at 10% of income compared to a national average of 9.7% according to the Tax Foundation.
If you retire in Maine, you may be subject to state income tax. The previous marginal tax rates were replaced starting in 2010 with a flat tax of 6.5% of Maine taxable income. For taxable income greater than $250,000 there is a surcharge of 0.35%, so the maximum rate is 6.85% on taxable income over $250,000. This is lower than the previous maximum rate of 8.5%.
Another change in 2010 is that the Maine standard and itemized deductions are repealed and replaced with new tax credits. One of the credits is a refundable household credit, which is $700 for single filing status and $1,200 for married filing jointly. The credit is increased by $250 for each exemption, and is phased out for Maine taxable income of over $27,500 for single and over $55,000 for married filing jointly. There is also an elderly tax credit of $60 for each taxpayer age 65 or older. The credit is phased out for Maine adjusted gross income of over $32,000 for single and over $52,000 for married filing jointly.
Social security and railroad retirement benefits are not subject to Maine state income tax. And you can deduct up to $6,000 of other types of retirement income such as state, federal, and military pensions, qualified employee benefit plans, and distributions from a 401(k), a 403 employee annuities plan, a 457(b) plan, or an employee deferred compensation plan. If you are married, each spouse can deduct up to $6,000. Distributions from an IRA, SIMPLE, or SEP plan do not qualify for this deduction. Also, the $6,000 cap has to be reduced by any social security or railroad retirement benefits you received. But military pensions do not have to be reduced.
Property taxes in Maine are above average compared to other states. According to the Tax Foundation, Maine ranked 18th in 2009 in terms of property taxes as a percentage of home value, at 1.09% overall. The Maine Revenue Services website provides full value tax rates by county and municipality for comparison purposes.
Maine residents can claim a $10,000 homestead exemption on their principal residence once they have owned the property for at least 12 months. There is a $6,000 exemption for veterans who served during a war period and are at least 62 years old, or are receiving 100% disability as a veteran or became 100% disabled while serving. Paraplegic veterans who received a federal grant for specially adapted housing can qualify for a $50,000 exemption. There is a $4,000 property tax exemption for Maine homeowners who are legally blind.
Maine residents who own or rent their home could qualify for a property tax refund up to a maximum of $1,600 through the circuit breaker program if they meet the income requirements. The household income limits are subject to change each year and can be found on the Tax Relief page of the Maine Revenue Services website. If you own your home, your property taxes must be more than 4% of your household income. If you rent, the total rent you paid during the year must have been more than 20% of your household income. But seniors do not have to meet that requirement when their household income is less than $14,700 for persons living alone, or less than $18,200 if living with a spouse or dependent.
Maine has a 5% state sales tax and there is no local option to add additional sales tax. Prescription drugs are exempt from sales tax. Food and prescription drugs are exempt from sales tax. The sales tax on lodging and prepared food is 7% and the tax on short term auto rentals is 10%.
The Facts on Maine’s Tax Climate – The Tax Foundation
Full Value Tax Rates – Maine Revenue Services
Individual Income Tax Booklet – Maine Revenue Services
Property Tax Exemptions – Maine Revenue Services
Property Taxes on Owner-Occupied Housing by State, 2004 – 2009 – Tax Foundation
Tax Relief – Maine Revenue Services
Taxes by State – Maine – Retirement Living Information Center