Maine Retirement Tax Friendliness

Maine Retirement Taxes

According to the National Oceanic and Atmospheric Administration, Maine has 3,478 miles of coastline, fourth-most of any state. That means plenty of space to sail, swim, kayak or watch the sunrise. Those are all good reasons to choose Maine as a retirement destination, but what about the state’s tax system?

Compared with other states, Maine has relatively punitive tax rules for retirees. While it does not tax Social Security income, other forms of retirement income are taxed at rates as high as 7.15%. It also has above average property taxes. However, the estate tax exemption here is among the highest state exemption levels.

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Is Maine tax-friendly for retirees?

Social Security is exempt from taxation in Maine, but other forms of retirement income are not. Seniors who receive retirement income from a 401(k), IRA or pension will pay tax rates as high as 7.15%, though a small deduction is available.

The state’s property taxes are somewhat higher than the national median at a 1.28% effective rate. Maine's estate tax exemption threshold is $6.8 million for 2024, which is high for a state figure. But this is still well below the federal threshold of $13.61 million for 2024.

Is Social Security taxable in Maine?

All Social Security income in Maine is exempt from the state income tax. Any Social Security income included in your federal adjusted gross income (AGI) should be subtracted out of your Maine income when filing you state income tax return.

Are other forms of retirement income taxable in Maine?

Income from retirement savings accounts like an IRA or 401(k) is taxable. Pension income, whether from a public employee pension fund or from a private employer, is also taxable. However, the state does not tax military pensions.

In 2023, the state allowed you to deduct up to $35,000 in pension income. In 2024, the value of the pension deduction will be equal to to the maximum annual benefit allowable at full retirement age under the Social Security Act ($45,864 in 2024). However, you cannot claim this deduction on your other forms of retirement income. In that case, all your other retirement income will be taxed as part of your gross income at the rates shown in the bracket table below.

How high are property taxes in Maine?

A typical Maine homeowner can expect to pay about $2,722 in property taxes. While this rate is higher than the national average, the median home value in Maine is lower than the national median at $212,100.

What is the Maine homestead exemption?

Maine homeowners whose home is their permanent residence and they've owned it for at least 12 months are eligible for the homestead exemption. It is worth up to $25,000, which is subtracted from the home’s taxable value prior to the application of local tax rates.

Senior veterans are also eligible for the veteran exemption. It is equal to $6,000 and available to any veteran who is age 62 or older and served during a recognized war period.

How high are sales taxes in Maine?

The state sales tax rate in Maine is relatively low at 5.5%, but there are no additional county or city rates collected on top of that. Therefore, 5.5% is the highest possible rate you can pay in the entire state of Maine.

Seniors also benefit from a number of major sales tax exemptions. Items exempt from the sales tax in Maine include groceries, prescription drugs and durable medical equipment, such as wheelchairs.

What other Maine taxes should I be concerned about?

The Maine estate tax applies to all estates with a taxable value of $6.8 million or higher in 2024. The state charges an 8% estate tax on the portion of an estate that exceeds $6.8 million in value, up to $9.8 million. Property in excess of $9.8 million is taxed at 10% up to $12.8 million. Estates worth more than $12.8 million will pay a 12% on all property in excess of that threshold.