Montana earns below moderate marks in national “taxing retirees” study

Budget

By Martin Kidston

Penny-wise retirees looking to settle in Montana would be wise to spend their golden years in Sidney, Whitefish or Bozeman while passing on Missoula, Belgrade or Billings.

But in the end, each of the cities aren’t that far apart when it comes to their tax burden on senior citizens, according to a new study on tax-friendly cities for retirees.

Montana as a whole earned a less-than-moderate score on taxes paid by retirees.

“Our study aims to find the areas with the most tax-friendly policies for retirees,” said AJ Smith, vice president of content for Smart Asset. “To do that, we looked at how the tax policies of each city would impact a retiree with a $50,000 income. That dream of retirement might be sitting on a beach, but there’s more to retirement than that.”

Smart Asset, based in New York, calculated the income tax, property tax, sales tax and fuel tax a retiree with a $50,000 income would pay in individual cities and states. It also determined whether Social Security income was taxable in any particular state.

The study used a hypothetical retiree receiving $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings and $10,000 in wages. The tax-friendly survey didn’t consider medical opportunities or other services catered to seniors, Smith said.

Among 10 Montana cities, Missoula ranked 8th for its tax policies related to seniors. While fuel taxes paid in Missoula was second-best among the listed Montana cities at $318 a year, it’s property taxes were the highest at 1.04 percent.

Sidney and Whitefish scored the best in the tax-friendly category for seniors while Belgrade and Billings ranked the worst.

“Missoula has the highest among the 10 cities in Montana for property tax, but it’s still lower than the national average of 1.2 percent,” said Smith. “We can look at the state and national average and see the property tax rate in Montana is quite a big lower, and sales tax paid is lower. But it looks like income tax paid is a little higher in Montana than the U.S. Average.”

According to the survey, the state income tax for a senior with a $50,000 annual income would be $7,438. The findings of the survey ranked Montana as “moderately” tax friendly to retirees. The absence of a state sales tax made up for its lack of exemptions for retiree incomes.

With a perfect score being 100, each of the 10 Montana cities scored in the 30s, with Missoula earning a score of 31.9.

“Unlike its landscape, Montana’s tax system may disappoint some seniors,” the survey says of the state. “That’s because it fully taxes most forms of retirement income while taxing a portion of Social Security benefits for retirees above a certain income level.”

Smith said some states don’t tax Social Security, though Montana isn’t one of them. She said a change in this state policy would improve the state’s standing as a tax friendly place for seniors, as would lower property taxes.

“Most retirees are on a fixed income, and we wanted to show people there are differences depending on where they live,” said Smith. “There are certainly better places in the country that have better tax benefits for retirees.”

Contact reporter Martin Kidston at info@missoulacurrent.com