Pennsylvania, with its variety of landscapes, abundant opportunities for outdoor activities, four distinct seasons, large and small cities and rural areas offers retirees a range of possibilities. As indicated in the Future Years website, Pennsylvania has dependable health care facilities and the cost of health care is below the national average. Top Retirements reports that median home prices in Pennsylvania are usually lower than in the rest of the country, although prices in the suburbs of Philadelphia can be quite high. The overall state and local tax burden in Pennsylvania is relatively high, at 10.2 percent of income according to the Tax Foundation, ranking the state 11th nationally.
In Pennsylvania, your income is subject to state income tax at a flat rate of 3.07 percent. But various types of retirement income are exempt, including social security and railroad retirement benefits, military pensions, civil service annuities, and United Mine Workers pensions. Distributions from the State Employees’ Retirement System, the Pennsylvania School Employees’ Retirement System, the Pennsylvania Municipal Employees’ Retirement System and the U.S. Civil Service Commission Retirement Disability Plan are also exempt.
Other types of pensions and retirement income are not subject to state income tax in Pennsylvania after you have reached age 59 ½ and have retired based on years of service. This includes employer-sponsored retirement plans such as 401(k) plans and deferred compensation plans. Benefits you receive from a retirement plan before you are eligible to retire are generally subject to state income tax in Pennsylvania. But if you roll over the benefits into another qualified retirement plan or IRA, they would not be subject to tax.
If you receive distributions from an IRA before you reach age 59 ½, the amount of the distributions that exceed your contributions to the IRA would be subject to tax in Pennsylvania. If you roll over the distribution from a traditional IRA to a Roth IRA, the distribution would not be taxable.
Property taxes in Pennsylvania are relatively high compared to other states. According to the Tax Foundation, Pennsylvania ranked 13th among the states in 2009 in terms of property taxes as a percentage of home value, with a rate of 1.35% compared to an overall rate of 1.04% for the U.S.
There is property tax relief through homestead and farmstead exemptions that reduce the assessed value. Homeowners age 65 or older, widows or widowers age 50 or older and homeowners who are disabled can claim a property tax rebate. The amount of the rebate is based on your level of income, up to a maximum of $35,000. Total income for purposes of determining the property tax rebate excludes half your social security income. The maximum rebate is $975.
Pennsylvania has a 6 percent sales tax and local taxing jurisdictions can add up to an additional 2 percent. Food, clothing, heating fuel, prescription and non-prescription drugs are exempt from sales tax.
Pennsylvania has an inheritance tax that applies on the net value of property transfers from a decedent’s estate to beneficiaries. The inheritance tax rate depends on the relationship of the beneficiary to the decedent. Property transfers to a surviving spouse are taxed at a zero percent rate. Transfers to direct descendants and lineal heirs are taxed at 4.5%. The tax rate is 12% for transfers to siblings and 15% for other heirs. Transfers to charitable organizations and property owned jointly between husband and wife are exempt from inheritance tax.
Best Places to Retire in Pennsylvania – Top Retirements
Expanded Relief for Seniors – Pennsylvania Property Tax Relief
The Facts on Pennsylvania’s Tax Climate – Tax Foundation
Inheritance Tax – Pennsylvania Department of Revenue
Pennsylvania Personal Income Tax Return – Pennsylvania Department of Revenue
Property Taxes on Owner-Occupied Housing by State, 2004 – 2009 – Tax Foundation
Retirement in Pennsylvania – Future Years
Taxes by State – Pennsylvania – Retirement Living Information Center