Delaware Retirement Taxes: No Sales Tax & Pension Exclusions
The "First State" offers unique tax advantages for retirees including no sales tax and generous pension exclusions.
Key Takeaways
- 1No sales tax in Delaware—significant savings on purchases
- 2Social Security benefits are 100% exempt from state tax
- 3$12,500 pension/retirement income exclusion for those 60+
- 4Low property taxes compared to neighboring states
- 5Graduated income tax with top rate of 6.6%
- 6No estate or inheritance tax on most transfers
No Sales Tax: Delaware's Biggest Advantage
Delaware is one of only 5 states with no sales tax. This provides immediate savings on all purchases.
- No state or local sales tax on any purchases
- Save 6-10% compared to neighboring states (PA, NJ, MD)
- Big savings on major purchases: cars, appliances, furniture
- No tax on services either
- Attracts shoppers from surrounding states
| Purchase | Delaware Cost | Cost in 7% Sales Tax State | Savings |
|---|---|---|---|
| $30,000 Car | $30,000 | $32,100 | $2,100 |
| $3,000 Appliances | $3,000 | $3,210 | $210 |
| $10,000 Furniture | $10,000 | $10,700 | $700 |
| $2,000/mo Spending | $24,000/yr | $25,680/yr | $1,680/yr |
Retiree Impact
A retiree spending $40,000/year on taxable goods saves approximately $2,800-$4,000 annually compared to living in a high sales tax state.
Retirement Income Tax Treatment
Delaware has a graduated income tax but offers significant exemptions for retirement income.
- Social Security benefits: 100% exempt
- Railroad Retirement benefits: 100% exempt
- Pension and retirement income: $12,500 exclusion (age 60+)
- Additional $12,500 exclusion for eligible investment income (age 60+)
- Top tax rate: 6.6% on income over $60,000
| Income Level | Delaware Tax Rate |
|---|---|
| $0 - $2,000 | 0% |
| $2,001 - $5,000 | 2.2% |
| $5,001 - $10,000 | 3.9% |
| $10,001 - $20,000 | 4.8% |
| $20,001 - $25,000 | 5.2% |
| $25,001 - $60,000 | 5.55% |
| Over $60,000 | 6.6% |
The $12,500 Pension Exclusion
Delaware offers a $12,500 exclusion for pension and retirement income for those age 60 and older.
- Applies to pension income, 401k withdrawals, IRA distributions
- Each spouse qualifies separately (married couples get $25,000 total)
- Must be age 60+ by end of tax year
- Additional $12,500 exclusion for eligible investment income
- Combined exclusions can shelter $50,000 for married couples
Example Tax Savings
A married couple age 65+ with $50,000 in pension income and $30,000 in investment income could exclude $50,000, paying state tax only on $30,000 of investment income.
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Low Property Taxes
Delaware has some of the lowest property taxes in the region, with additional relief for seniors.
- Senior School Property Tax Credit: Up to $500 off school taxes (65+)
- Property Tax Relief for Seniors: Available for those 65+ with income limits
- No county property tax in some areas—only school district taxes
- Compare to neighbors: PA (1.5%), NJ (2.2%), MD (1.0%)
| County | Average Rate | Annual Tax on $300k Home |
|---|---|---|
| New Castle | 0.56% | $1,680 |
| Kent | 0.45% | $1,350 |
| Sussex | 0.35% | $1,050 |
Delaware vs. Neighboring States
See how Delaware compares to nearby states for retirees.
- Best for: Those making significant purchases (no sales tax)
- Consider PA if: You have high pension income (full exclusion)
- Avoid NJ if: You have high income (top rate 10.75%)
| Factor | Delaware | Pennsylvania | New Jersey | Maryland |
|---|---|---|---|---|
| Sales Tax | 0% | 6% | 6.625% | 6% |
| SS Taxed? | No | No | No | No |
| Top Income Rate | 6.6% | 3.07% | 10.75% | 5.75% |
| Property Tax Rate | 0.56% | 1.5% | 2.2% | 1.0% |
| Pension Exclusion | $12,500 | Full | Varies | $34,300 |
Small State Considerations
Delaware is small (96 miles long) with limited major metro areas. Consider healthcare access, family proximity, and lifestyle when choosing Delaware over larger states with more retirement community options.
Moving to Delaware? Protect Your Relocation Windfall
Selling a home in a high cost-of-living area to move to Delaware can create substantial investable assets. A Gold IRA helps protect this wealth.
- Gold IRA withdrawals eligible for $12,500 exclusion (age 60+)
- No sales tax on gold purchases made in Delaware
- Physical gold hedges against inflation in retirement
- Diversification beyond Delaware real estate
- Tax-deferred growth until distribution
Frequently Asked Questions
1Does Delaware tax Social Security benefits?
No, Delaware does not tax Social Security benefits. They are 100% exempt from state income tax regardless of your other income or filing status.
2What is Delaware's pension exclusion?
Delaware offers a $12,500 exclusion for pension and retirement income (including 401k and IRA withdrawals) for residents age 60 and older. Married couples filing jointly can each claim the exclusion for a total of $25,000.
3Is Delaware good for retirees?
Delaware offers significant advantages: no sales tax, Social Security exempt, generous pension exclusions, and low property taxes. However, it's a small state with limited geographic diversity. Best for retirees who value tax savings and proximity to major East Coast cities.
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