Delaware taxes for early retirees: no sales tax, a $12,500 exclusion and a birthday at 60

By Tom, CPA · Updated October 29, 2026

TL;DR: Delaware doesn't tax Social Security and has no sales tax and no estate tax. At 60, each person can exclude up to $12,500 of pensions plus eligible retirement income, which includes IRA and 401(k) withdrawals, dividends, interest, capital gains and net rent. Before 60 the exclusion is only $2,000 of pension income. Rates run from 2.2% up to 6.6% above $60,000.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Delaware is famous for two things: incorporating companies and not charging sales tax. People drive in from three states to buy televisions there, which tells you something about human nature and the price of televisions. For retirees, Delaware has a quieter trick: a $12,500 exclusion at age 60 that covers not just pensions but IRA withdrawals, dividends, interest and capital gains. That's unusually broad, and it's per person.

The catch is the age. Delaware's birthday present arrives at 60, and before that the state treats your portfolio income like anyone else's. Meet Sixty Sam and his younger neighbor Fifty-Two Fiona, who discovered that the difference between 59 and 60 is worth real money in Dover.

CPA Warning Label: Delaware's best retirement break starts at 60, not 59 1/2 or 55. A FIRE retiree in their 50s gets only a $2,000 pension exclusion, and nothing at all for IRA withdrawals or dividends.

Income tax rates

Delaware's rate schedule is in 30 Del. C. 1102(a)(14) and has applied since 2014:

There's one schedule for everyone; the brackets don't double for joint filers. That's why many Delaware couples use the combined separate filing status on the same return, so each spouse gets their own trip up the staircase. The Division of Revenue's FAQ notes there's no reason to withhold more than 6.6% on any distribution. Delaware's 2026 forms weren't published as of October 29, 2026; the rate schedule is statutory and unchanged.

What's taxed: Social Security out, almost everything else in

The Division of Revenue's FAQ is blunt: Social Security and Railroad Retirement benefits are not taxable in Delaware. Pensions, 401(k) and IRA withdrawals that are federally taxable are taxable in Delaware too, subject to the pension exclusion below. Interest, dividends and capital gains are taxed as ordinary income; there's no special capital gain rate.

Roth IRAs: qualified Roth distributions aren't in federal AGI, so they aren't in Delaware income. A Roth conversion is a taxable IRA distribution; once you're 60, IRA distributions count as eligible retirement income, so a conversion can use whatever room is left in your $12,500. Before 60, a conversion gets no exclusion.

Early withdrawals: the PIT-RES instructions say a distribution with code 1 on Form 1099-R, or one hit with the federal early withdrawal penalty, doesn't qualify for the pension exclusion.

The pension exclusion: $2,000 now, $12,500 at 60

Under 30 Del. C. 1106(b)(3), the exclusion works like this:

• Under 60 on December 31: exclude up to $2,000 of pension income. Military pensions get up to $12,500 at any age.
• 60 or older on December 31: exclude up to $12,500 of pension income plus eligible retirement income combined.

"Eligible retirement income" is unusually broad: dividends, capital gains net of losses, interest, net rental income from real property, and distributions from qualified plans like IRAs, 401(k)s, Keogh plans and 457 plans. Each spouse gets their own exclusion, and income from joint accounts is split equally between spouses for the calculation. One spouse can't use the other's unused amount. The state's own tax preference report notes the exclusion isn't means tested, so wealthy retirees get it too.

Deductions and credits for older taxpayers

For 2025, the standard deduction is $3,250 for single filers and $6,500 for married filing jointly. Taxpayers 65 or older add $2,500 each, but only if they take the standard deduction.

Delaware uses personal credits instead of exemptions: $110 per personal exemption, and an additional $110 for each taxpayer who is 60 or older. A couple both over 60 gets $440 of credits, which wipes out the first chunk of tax.

Illustration: Sixty Sam vs. Fifty-Two Fiona

Illustration (2025 rules; hypothetical figures; joint return): Sam and his wife are both 62. Sam withdraws $30,000 from his IRA and his wife withdraws $10,000 from hers. They have $10,000 of joint interest and dividends and $36,000 of Social Security.

• Social Security: excluded.
• Sam's eligible income: $30,000 IRA + $5,000 (his half of joint investment income) = $35,000, so his exclusion is capped at $12,500.
• Wife's eligible income: $10,000 + $5,000 = $15,000, capped at $12,500.
• Delaware taxable income: $40,000 + $10,000 - $25,000 exclusions - $6,500 standard deduction = $18,500.
• Tax on $18,500: $0 + 2.2% x $3,000 ($66) + 3.9% x $5,000 ($195) + 4.8% x $8,500 ($408) = $669.
• Credits: $110 x 2 + $110 x 2 for being 60+ = $440. Delaware tax: $229.

Fiona and her husband are 52 with the same IRA withdrawals and investment income, and no Social Security yet. Neither has a pension, so the under-60 $2,000 exclusion doesn't help, and IRA withdrawals and dividends don't count before 60. Delaware taxable income: $50,000 - $6,500 = $43,500. Tax: $66 + $195 + $480 (4.8% x $10,000) + $260 (5.2% x $5,000) + $1,026.75 (5.55% x $18,500) = $2,027.75, less $220 of personal credits = about $1,808. Same money, ten years younger, roughly $1,579 more tax. Filing combined separate could lower both bills a bit.

Property tax: low bills and a school tax credit

Delaware property taxes are levied by counties, school districts and municipalities, and bills are low by Mid-Atlantic standards. Get the actual bill for any home you're considering, since recent county reassessments have shifted many bills.

Homeowners 65 and older can apply for the Senior School Property Tax Credit: 50% of regular school property taxes on a primary residence, capped at $500, per the Department of Finance. There's a residency requirement: people who became Delaware residents on or after January 1, 2018 need 10 years of residency to qualify. So a newcomer at 60 waits until 70.

No sales tax, no estate tax

Delaware has no state or local sales tax. Instead, businesses pay a gross receipts tax on what they sell, with rates the Division of Revenue lists from roughly 0.0945% to 1.9914% depending on the business type. Some of that is built into prices, but you won't see a line on your receipt.

Delaware repealed its estate tax for deaths after December 31, 2017, and has no inheritance tax. Federal estate and gift rules still apply.

Planning moves for Delaware early retirees

Delaware's rules suggest a few clear moves for FIRE households:

• Wait for 60 to pull the big money if you can. Before 60, your IRA withdrawals, dividends and interest are fully taxable. At 60, up to $12,500 per person is excluded. If you have a taxable brokerage account or Roth contributions to live on in your 50s, use them first and save the IRA for your 60s.
• Balance income between spouses. The exclusion is per person, and one spouse can't use the other's leftover room. If one spouse has a giant IRA and the other has a small one, consider spreading withdrawals and holding investments jointly so each spouse has enough eligible income to use their full $12,500.
• Use the bottom brackets for conversions after 60. A conversion counts as an IRA distribution, so once you're 60 it can soak up unused exclusion room, and the first few thousand dollars above that are taxed at low rates.
• Plan the 10-year clock for the school tax credit. If you move to Delaware at 55, you'll have your 10 years of residency at 65, right when you qualify by age.

And of course, buy the television in Delaware. There's no sales tax.

Residency and estimated payments

Delaware taxes residents on all their income; part-year residents file a nonresident return for the move year and report the income earned while resident. If you expect to owe more than a small amount after withholding, make quarterly estimated payments to the Division of Revenue. Pension and IRA payers will withhold Delaware tax if you ask, which can replace estimates.

Moving is a two-state tax event, not a one-state one. Before you load the truck, read how to change your state residency without your old state following you, check how the federal Social Security tax torpedo interacts with your withdrawals, and run your numbers through the state tax move calculator.