Taxes by State

Updated: September 2022

Many people consider state income taxes when deciding where to retire. However, many lesser-discussed taxes like higher sales and property taxes can increase your tax bill and have a severe impact on retirement living. Local taxes can be a burden, as well.

Select your state from the map below to see the related tax information.

You may also search for tax information by choosing one of these three sections:
Alabama-Iowa, Kansas-New Mexico, New York-Wyoming

You should consider all state taxes when planning your retirement. Depending on where you live when you retire, you may have to pay some of all of these taxes:

  • Sales tax
  • Excise taxes
  • License taxes
  • Income tax
  • Property tax
  • Estate tax
  • Inheritance tax

Use this guide to determine the most tax-friendly states for retirees. We explain a variety of state and local taxes that impact your ability to retire or age in place affordably. See our Best and Worst States 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 By State

As of 2022, 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.

Some states exempt all pension income and most exempt Social Security benefits. Fourteen states currently exempt pension income entirely for qualified individuals: Alabama, Florida, Hawaii, Mississippi, Nevada, Tennessee or Texas. Other states with no tax on pensions are New Hampshire, Pennsylvania, Alaska, South Dakota, Illinois, Washington and Wyoming. Other states provide only partial exemption or credits, and some tax all retirement income.

Our research breaks down how each state taxes or exempts retirement income further.

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Retirement-Related Tax Reforms

The 2020 SECURE Act affected all retirees to some degree on the federal level. This legislation bumped up the age for taking Required Minimum Distributions (RMDs) from 70½ to 72. It also allowed you to contribute to a traditional IRA as long as you have earned income.

Furthermore 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% as of January 2021.
  • Iowa: Established a 3.9% flat income tax rate and eliminated state tax on retirement income in 2022.
  • Kansas and Virginia: Permanently exempted groceries from the state sales tax in 2022.

Only 12 states impose a tax on Social Security income: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. 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—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—have no income tax and two 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%.

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.

State and Local Property Taxes

Many states, and some local jurisdictions, offer senior homeowners property tax relief in the form of exemptions, credits, abatements, tax deferrals and refunds, though 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. Many states have eliminated their estate tax, but those that do levy them vary greatly. For example, some states exclude the federal amount of $11.58 million from estates for taxation purposes, but others do not. Illinois only excludes $4 million, and Massachusetts excludes $1 million.

Estate tax laws across the nation have changed immensely in recent years and will probably continue to be so moving forward.


Charts and Tables to Compare States

Sources:

  • Individual state tax and revenue departments
  • Fidelity: Tax Reform and Retirees
  • The Tax Foundation

Updated September 2022; based on available data.