Birch Bay the most tax-friendly place in Washington for retirees

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By Jami Makan

Birch Bay is number one in Washington in retirement tax friendliness, according to a study by SmartAsset, a financial technology company that provides personal finance advice on the web.

East Port Orchard, Wollochet, Lake Stickney, Brier, Bothell East, Maplewood, Sedro-Woolley, Sudden Valley and Union Gap make up the rest of the top 10, in that order.

The study, which aimed to find the areas with the most tax-friendly policies for retirees, considered a hypothetical retiree with a $50,000 income.

Of that income, $15,000 was from social security benefits, $10,000 was from a private pension, $10,000 was from wages and $15,000 was from retirement savings like a 401(k) or IRA.

To calculate the expected income tax this person would pay in each location, SmartAsset applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. The company then calculated how much this person would pay in income tax at the federal, state, county and local levels. According to the study, the hypothetical retiree would pay $4,100 in income tax in Birch Bay. Social security would not be taxed.

SmartAsset then calculated the effective property tax rate by dividing median property tax paid by median home value for each city. According to the study, Birch Bay has a property tax rate of 0.89 percent.

In order to determine sales tax burden, SmartAsset estimated that 35 percent of take-home, after-tax pay is spent on taxable goods. The company multiplied the average sales tax rate for a city by the household income less income tax. This product was then multiplied by 35 percent to estimate the sales tax paid. According to the study, the hypothetical retiree would pay $1,044 in sales tax in Birch Bay.

For fuel taxes, SmartAsset first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. The company then calculated miles driven per capita in each city. Using the nationwide average fuel economy, they calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax. According to the study, the hypothetical retiree would pay $262 in fuel taxes in Birch Bay.

Finally, SmartAsset created an overall index weighted to best capture the taxes that most affect retirees. They gave a 4X weighting to income tax, 3X weighting to property tax rate, a 2X weighting to sales tax and 1X weighting to fuel tax.

Based on this methodology, Birch Bay came out on top of all other cities in Washington, with a retirement tax friendliness index of 73.79. For the full results of the study, visit bit.ly/2IDarrb.

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