Florida Retirement Income Tax Overview

The Sunshine State has become a haven for retirees with its promise of year-round warm weather and compelling tax benefits; but does Florida tax retirement income? New and existing Florida residents must know which taxes their retirement distributions and pension income are subject to and how to make the most of their money at the end of their working lives.

If you plan to purchase a second home in Florida, you must also ensure that you take all the right steps to gain official residency in the state to enjoy the tax benefits Florida offers its residents. Working with a tax professional will set you on the right path to a prosperous retirement in Florida.

Is Retirement Income Taxable in Florida?

No, retirement income is not taxable in Florida because the state doesn't tax personal income. As a result, distributions from your pension, 104(k), 403(b), or IRA aren't subject to Florida state taxes. This includes IRAs that you used to accumulate savings over the years in different states. When you move to Florida from a different state, withdrawals won't be taxed at the state level.

Even though Florida has no income tax at the state or local level, you will still owe federal income tax on pension payments or distributions from traditional (non-Roth) retirement accounts. The taxable part of your pension or annuity payments is typically subject to federal income tax withholding.

Many retirees in Florida turn to tax planning experts to keep them compliant with all their obligations and optimize their tax bills.

Is Social Security Taxable in Florida?

The state of Florida doesn't tax Social Security income but you might have to pay federal taxes on a portion of your Social Security benefits. This will depend on your income:

Filing as an Individual

You're liable to pay tax on up to 50% of your benefits if you earn between $25,000 and $34,000 total income. Up to 85% of your benefits will be taxed by the federal government if your income exceeds $34,000.

Filing Jointly as a Married Couple

50% of your benefits will be taxed if you file jointly and make between $32,000 and $42,000. 85% of your benefits will be taxed if, between you, your total income exceeds $44,000.

Is Personal Income Taxable in Florida?

Personal income is an umbrella term that includes income from many different sources. These include salaries, wages, bonuses, dividends, rental receipts from investments in real estate, distributions from investments, and profit sharing from businesses. As mentioned previously, Floridians don't pay any personal income tax at the local or state level.

Does Florida Have an Inheritance or Estate Tax?

There is currently no estate or inheritance tax in Florida. This means that children or heirs who inherit property, cash, or other assets won't pay tax on them to the state. Wealthy Florida residents also won’t pay state taxes on their estates after they pass away. The exception to this rule would be if the deceased person owns property in Florida and another state where estate tax is charged. In this case, a Florida-based decedent may owe tax in another state.

Be aware that inheritance and estate taxes are different:

• Estate taxes are sometimes colloquially known as the "death tax." The federal estate tax applies to the estate of the deceased person, but it only applies to estates worth over a certain amount. For deaths in 2024, the threshold amount for paying estate taxes is $13,610,000.

• Inheritance tax is charged on money after it's passed on to the deceased person's heirs in some states. The inheritance tax applies if the state where the decedent lived has an inheritance tax, irrespective of where the decedent’s heir(s) live. There is no federal inheritance tax.

Property Taxes in Florida

Property tax in Florida is based on the assessed value of your home and varies widely across the state. County appraisers estimate each property’s market value as of January 1 each year. According to the Tax Foundation, theaverage property tax rate in Florida was 0.91% as a percentage of owner-occupied housing value in 2021. Keep in mind that the actual tax rate varies depending on where you live.

The Homestead Exemption

Florida residents who own property and use it as their permanent residence could be eligible for a property tax exemption of up to $50,000.

Other discounts may also be available to homeowners with disabilities, veterans or active-duty military members, disabled first responders, or property owners 65 years old and above who fulfill certain requirements.

Advantages of the Homestead Exemption

Once you qualify for a homestead exemption, your home's assessment value won't increase more than 3% or the percentage change in the Consumer Price Index; whichever is less. This is a part of the Save Our Homes program.

Sales Tax in Florida

Sales taxes are 6% in Florida and apply to most consumer goods and services. There is an additional surtax in some counties that ranges between 0.5% and 1.5%. For certain high-ticket transactions like vehicles, mobile homes, boats, and aircraft, the surtax only applies to the first $5,000 of the sale.

Capital Gains Tax in Florida

In Florida, long-term and short-term capital gains taxes are only paid on a federal level.

Make Sure You Qualify as a Florida Resident for Tax Purposes

Retirees purchasing a primary or second home in Florida must establish their residency for tax purposes to benefit from the tax breaks offered by the state. For example, a couple who wishes to purchase a second home in Jacksonville, Florida to escape the cold weather in their current home in New York State would need to prove their residency in Florida to benefit from the state’s favorable tax policies.

To this end, you must be able to demonstrate that you spend more than half the year (183 days per year) in Florida. Keep verifiable proof of the days you spend in the state; you could do this by:

• Opening an account at a local bank and keeping receipts when you use the ATM

• Shopping locally to show credit card records that prove where you were

• Keeping proof of appointments in Florida, for example with your healthcare providers

• Registering to vote in Florida and changing your driver's license and car registration

• Filing a Declaration of Domicile with your local county court

Don't Miss Out On Any Florida Retirement Benefits

A move to Florida can be a wonderful decision both for your quality of life and for your finances. Florida can be a haven for retirees as a permanent residence or as a paradise location to enjoy half of each year.

An important part of enjoying your retirement is keeping as much as you can of your hard-earned pension payments by taking advantage of Florida's appealing tax benefits. Getting advice from a Florida-based accounting expert will help you make the most of the experience.