You should consider all state taxes when planning your retirement. Depending on where you live when you retire, you may have to pay some or all of these taxes:
- Sales taxes
- Excise taxes
- License taxes
- Income taxes
- Property taxes
- Estate taxes
- Inheritance taxes
For additional context, this guide, the most tax-friendly states for retirees, explains various state and local taxes that impact your ability to afford retirement or age in place. Our best and worst states for retirement guide can also help you determine your options for a retirement destination.
To learn about existing tax burdens where you want to retire, select a state above or click on a state below.
Taxes In Your State
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
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Taxes on Retirement Benefits Vary by State
As of 2023, eleven states have no tax on regular or retirement income: Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming. Other states treat retirement income taxes very differently.
For example, New Hampshire has a 5% tax on dividends and interest, but it will be phased out by January 2027. Oregon taxes most retirement income at the top rate while allowing a credit of up to $7,050 for retirement distributions.
Only 12 states impose a tax on Social Security income: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. These states either tax Social Security income at the federal level or provide limited breaks for Social Security income. Lower-income individuals are often entitled to tax breaks. West Virginia no longer taxes Social Security, having phased out its rates completely in 2022.
Some states exempt all pension income, and most exempt Social Security benefits. Alabama, Florida, Hawaii, Mississippi, Nevada, Tennessee or Texas exempt all pension income for qualified individuals. The states that do not tax pensions are New Hampshire, Pennsylvania, Alaska, South Dakota, Illinois, Washington and Wyoming. Other states provide only partial exemptions or credits, and some tax all retirement income.
State Income, Property, and Sales Taxes Impacting Retirement in 2023
In addition to taxes on retirement benefits, consider additional fees levied by the state that could affect your finances by the tens of thousands
State Income Tax
Seven states—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—have no income tax and two states only tax interest and dividends. If these states don’t interest you, several other states have relatively low tax rates across all income levels. Consider Arizona, Colorado, Illinois, Indiana, Michigan, New Mexico, North Dakota, Ohio, Pennsylvania and Utah—all states that levy tax on income under 5%.
- Idaho did away with its graduated income tax rate and introduced a flat rate of 5.8% on taxable income over $2,500 ($5,000 for joint filers) beginning in 2023; the threshold will adjust annually for inflation.
- Other states that reduced income tax rates for 2023 are Arizona, Indiana, North Carolina, and South Carolina
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. But your burden can jump significantly higher after combining local sales taxes. We’ve provided this information in our state profiles.
- New Mexico decreased its sales tax rate from 5.125% to 5.00% in July of 2022 and scheduled a further reduction to 4.875% for July 1, 2023.
- Kansas lowered the state sales tax on groceries to 4% in 2023 before phasing it out completely by 2025. Local taxes on groceries will still apply.
State and Local Property Taxes
The national average effective property tax rate is 0.99%. Residents in New Jersey incur the highest fees at 2.13%, while Alabama residents incur the lowest, just 0.37%.
Many states, and some local jurisdictions, offer senior homeowners property tax relief in the form of exemptions, credits, abatements, tax deferrals and refunds. However, they’ll need to meet age and income requirements to qualify. Renters also get tax breaks in some jurisdictions.
State Estate Taxes
Estate taxes can also influence where you want to retire. In addition to the federal estate tax (up to 40%), some states levy an additional estate or inheritance tax. Twelve states impose estate taxes and six impose an estate tax. Maryland is the only state that imposes both.
- Connecticut’s estate tax will have a flat rate of 12% in 2023.
- Iowa is reducing its inheritance tax by 20% each year until it is completely phased out by 2025.
Estate tax laws across the nation have changed immensely in recent years and will probably continue to be so moving forward.