State Income Taxes on Retirement Income
The majority of states—43 as of 2020—impose personal income taxes. Two others tax only interest and dividend income. Of those, 36 states offer some type of retirement income exclusion.
Each state has a different mix of tax breaks for retirees. Most exempt certain types of retirement income, but they tax others. Consider state taxes before you decide where to retire, unless you happen to live in a state with no income tax. But some of these states without income taxes have high taxes in other areas.
States That Exempt Social Security
Thirty states exempt all Social Security benefits from taxation, including:
- New Hampshire
- New Jersey
- New York
- North Carolina
- South Carolina
Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming are the states with no income tax at all as of 2020. Tennessee and New Hampshire have a tax, but only on interest and dividends. Social Security is exempt.
Taxation of Social Security Benefits
Among the states with personal income taxes, nine include Social Security benefits in taxable income. They provide exclusions, exemptions, and deductions, however.
- Colorado provides exclusions for $20,000 to $24,000 in Social Security, pension, and annuity income.
- Connecticut offers exemptions for single taxpayers and married taxpayers who file separate returns if their incomes are less than $75,000. This increases to $100,000 for married joint filers, qualifying widow(ers), and heads of household.
- Kansas provides an exemption for Social Security for those with federal adjusted gross incomes (AGIs) of $75,000 or less.
- Minnesota offers a special tax deduction to taxpayers who are age 65 or older or disabled, but eligibility depends on income.
- Missouri's state legislation includes a special deduction to taxpayers who are age 62 or older or disabled, but eligibility depends on AGI.
- New Mexico offers a tax deduction of up to $8,000 to taxpayers age 65 or older, depending on income.
- Rhode Island provides various tax breaks for Social Security, as well as provisions for pension income, military retirement pay, and retirement funds, including 401(k) and 403(b) accounts.
- Utah's legislation provides for a retirement credit of up to $450 for taxpayers who were born on or before December 31, 1952.
- West Virginia offers a deduction of up to $8,000 on all sources of income to taxpayers who are age 65 or older or disabled.
Tax law is ever-evolving and these provisions can change at any time. Check with your state's taxing authority for the most up-to-date qualifying rules if you're thinking of retiring soon.
State Tax Exemptions for Military Pensions
Several states exempt military pensions from taxation entirely. They include:
- New Jersey
- New York
Other states allow for at least some portion of military pension income to be excluded from taxation. Check with your state's taxing authority for the most specific, up-to-date terms.
State Taxes and Government Pensions
Federal law dictates that state tax policies can't discriminate against federal civil service pensions. States can't provide more favorable tax treatment to state and local pensions than they do for federal pensions. They can create tax policies that discriminate between their own state pensions and other state’s pensions, however.
Arizona, Idaho, Kansas, Louisiana, New York, and Oklahoma provide greater tax relief plans for their state’s pension plans than for out-of-state government pension plans.
Only 10 states exclude all federal, state, and local pension income from taxation:
- Michigan (for taxpayers born before 1946)
- New York
An additional five states offer exclusions for this type of income, depending on certain qualifiers such as age and AGI: Arkansas, Colorado, Delaware, Maine, and Missouri.
The Best and Worst States for Retirees
Alabama, Hawaii, and Illinois exempt nearly all retirement income. They exempt 100% of Social Security, military pensions, government pensions, and certain types of private pensions. Only Mississippi and Pennsylvania exempt all retirement income, including 401(k) and IRA distributions.
Four states allow no exclusions for pension and other retirement income: Minnesota, Nebraska, Rhode Island, and Vermont.
California has only a small tax credit for senior citizens and excludes only Social Security benefits and railroad retirement benefits from taxation.
Wolters Kluwer. “Wolters Kluwer Outlines State Tax Considerations for Retirees.” Accessed Jan. 8, 2021.
Tax Foundation. "State Individual Income Tax Rates and Brackets for 2020." Accessed Jan. 9, 2021.
Colorado Department of Revenue. “Income 25: Pension and Annuity Subtraction.” Page 2. Accessed Jan. 8, 2021.
State of Connecticut Department of Revenue Services. “Taxability of Social Security Benefits for Connecticut Income Tax Purposes.” Page 1. Accessed Jan. 8, 2021.
Kansas Department of Revenue. ”Kansas 2019 Income Tax.” Page 17. Accessed Jan. 8, 2021.
Minnesota Department of Revenue. "Age 65 or Older or Disabled Subtraction." Accessed Jan. 8, 2021.
Missouri Department of Revenue. "2019 Missouri Income Tax Refence Guide." Page 6. Accessed Jan. 8, 2021.
New Mexico Taxation and Revenue Department. “Does New Mexico Offer a Tax Break to Retirees?” Accessed Jan. 8, 2021.
State of Rhode Island Division of Taxation. “Inflation-Adjusted Amounts Set for Tax Year 2020.” Pages 4-5. Accessed Jan. 8, 2021.
Utah State Legislature. “59-10-1019. Definitions—Nonrefundable Retirement Tax Credits.” Accessed Jan. 8, 2021.
West Virginia State Tax Department. “West Virginia Personal Income Tax Act.” Accessed Jan. 8, 2021.
The Pew Charitable Trusts. “States Compete for Military Retirees.” Accessed Jan. 8, 2020.
NARFE.org. “State Tax Treatment of Federal Annuities Tax Year 2019.” Accessed Jan. 8, 2021.
Mississippi Department of Revenue. “Individual Income Tax FAQs.” Accessed Jan. 8, 2021.
Pennsylvania Department of Revenue. “Gross Compensation.” Accessed Jan. 8, 2021.
National Conference of State Legislatures. “State Personal Income Taxes on Pensions and Retirement Income: Tax Year 2014.” Pages 9, 12. Accessed Jan. 8, 2021.
State of California Franchise Tax Board. “2019 Pension and Annuity Guidelines.” Page 4. Accessed Jan. 8, 2021.