Updated: August 2020
Many people consider state income taxes when deciding where to retire. However, other state taxes can have a severe impact on retirement living. Higher sales and property taxes can be tough on your tax bill after you retire regardless of state income tax. Local taxes can be a burden, as well.
Select your state from the map below to see the related tax information.
Many types of state taxes impact retirement planning. Depending on where you live when you retire, you may have to pay all of these taxes or just a few.
- Sales tax
- Excise taxes
- License taxes
- Income tax
- Property tax
- Estate tax
- Inheritance tax
Use this guide to get help determining which states are tax-friendly for retirees. We explain a variety of state and local taxes that impact an affordable retirement or aging in place. See our Best and Worst State for Retirement to narrow your options for a retirement destination.
Select a state from the menu above to learn about existing tax burdens where you want to retire.
Taxes on Retirement Benefits Vary From State to State
Nine states currently have no tax on regular or retirement income: Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington or Wyoming. Other states can treat retirement income taxes very differently.
For example, Tennessee will stop taxing all forms of retirement income entirely in 2021. The Hall tax on bond and note interest and stock dividends will be wholly repealed at that time. Oregon taxes most retirement income at the top rate while allowing a credit of up to $6,250 for retirement distributions.
Some states exempt all pension income and most exempt Social Security benefits. Other states provide only partial exemption or credits, and some tax all retirement income.
Fourteen states currently exempt pension income entirely for qualified individuals. If this is important to you and you’re looking for a warmer climate, consider retiring in Alabama, Florida, Hawaii, Mississippi, Nevada, Tennessee or Texas. Other states with no tax on pension are New Hampshire, Pennsylvania, Alaska, South Dakota, Illinois, Washington and Wyoming.
You will learn about how each state taxes or exempts retirement income from our research.
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Retirement-related Tax Reforms
Retirees were affected to some degree on the federal level by the SECURE Act. This legislation changed the age for taking required minimum distributions (RMD) from 70½ to 72 for many who recently retired. The SECURE Act also allows for contributing to a traditional IRA as long as you have earned income.
Four states recently made changes affecting seniors with taxable income:
- Connecticut: Increased the exemption on income from the state teachers’ retirement system from 25% to 50%. The exemption increase will take place starting in January 2021.
- Indiana: The state is phasing in a military retirement income deduction over four years. This change started rolling out in 2019.
- North Dakota: Established a military retirement income deduction.
- West Virginia: Restored a deduction for income received from a defined retirement plan.
Only 13 states impose a tax on Social Security income. Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah and Vermont tax Social Security income. West Virginia taxes Social Security to some extent but is phasing that tax out entirely by 2022.
These states either tax Social Security income at the federal level or provide limited breaks for Social Security income. The breaks are often for lower-income individuals.
How State Income, Property and Sales Taxes Impact Retirement
In addition to state taxes on retirement benefits, consider others when evaluating tax-friendly states for retirees:
State Income Tax
Seven states have no income tax and two only tax interest and dividends. Several other states have a relatively low tax rate across all income levels. Arizona, Colorado, Illinois, Indiana, Michigan, New Mexico, North Dakota, Ohio, Pennsylvania and Utah levy tax on income under 5%.
State and Local Sales Taxes
Forty-five states and the District of Columbia impose a state sales and use tax. Alaska, Delaware, Montana, New Hampshire and Oregon are free of sales tax, but some Alaska cities charge local sales tax. States with the highest sales tax rates are California, Indiana, Mississippi, Rhode Island and Tennessee. Local sales taxes can add significantly to the combined rate, and we’ve provided that information in our state profiles.
State and Local Property Taxes
Many states and some local jurisdictions offer senior homeowners some form of property tax relief. Exemptions, credits, abatements, tax deferrals and refunds are among these benefits. Renters also get tax breaks in some jurisdictions. Age and income are typical qualifiers for the programs.
State Estate Taxes
Estate taxes can also influence where seniors want to retire. Many states no longer have an estate tax, and those that do have rules and rates that vary significantly. While some states exclude the federal amount of $11.58 million from estates for taxation purposes, others do not. Illinois only excludes $4 million, and Massachusetts excludes $1 million.
Estate tax laws have been in a state of flux in recent years and will probably continue to be so in the foreseeable future.
Charts and Tables to Compare States
- 2020 State Individual Income Tax Rates and Brackets for 2020
- State Tax Agencies
- Contact Phone Numbers for State Revenue Offices(or the equivalent of a tax help office)
- Individual state tax and revenue departments
- Wolters Kluwer 2020 Whole Ball of Tax
- Fidelity: Tax Reform and Retirees
- The Tax Foundation
Updated August 2020; based on available data.