The federal tax rules are very clear for retired people, however, each state has different regulations regarding retirement that can be confusing, especially because in each of the States of the Union the tax legislations are different.
With regard to retirements, some states tax almost all forms of income of retirees, while others do not impose any income taxes at all. Most retirees have a fixed income and follow a strict (and often tight) budget, so the decision of where to live, based on Social Security retirement taxes, or any type, defines how much income they will have during the golden years.
Taxes Over Your Retirement Savings: States That Do It
On average, Americans pay 2.1% of their annual income in income taxes to their respective states of residence. This percentage varies greatly depending on the state. Eight states have no personal income or retirement taxes, regardless of the source, so a retiree’s income is not taxed in those states. These states are:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
This list partially includes New Hampshire, which has a tax on interest and dividends over $2,400, but this tax will be gradually eliminated throughout 2024, to disappear completely on January 1, 2025.
Some other states don’t tax the retirement or Social Security incomes at all, because they don’t tax the personal income. These states are:
- Alabama
- Alaska*
- Arizona
- Arkansas
- California
- Delaware
- Florida*
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa **
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Mississippi
- Missouri
- Nevada*
- New Hampshire
- New Jersey
- New York
- North Carolina
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota*
- Tennessee*
- Texas*
- Vermont
- Virginia
- Washington*
- Wisconsin
- Wyoming*
* No state income tax
** Not taxed but used to help determine filing status.
States That Don’t Tax Your Pension Income in 2024
Most states in the United States tax some portion of pension income, whether it comes from defined benefit plans or government pensions. However, there are seventeen states that do not apply any tax on pensions, these being:
- Alabama
- Alaska (without state income tax)
- Florida (without state income tax)
- Hawaii
- Illinois
- Iowa (not taxable, but used to help determine filing status for purposes of filing)
- Mississippi
- Nevada (without state income tax)
- New Hampshire
- Pennsylvania
- Rhode Island
- South Dakota (no state income tax)
- Tennessee (without state income tax)
- Texas (without state income tax)
- Vermont
- Washington (without state income tax)
- Wyoming (without state income tax)
This means that if you reside in one of these states and receive pension income, you will not be subject to paying state taxes on that income. This can be an important consideration when planning for retirement, as it can influence the amount of money available for spending and the quality of life during retirement years.
Furthermore, there are some states that will not put any tax over your 401(k) or Individual Retirement Arrangements (IRA) savings, and those are:
- Alaska (without state income tax)
- Florida (without state income tax)
- Illinois
- Mississippi
- Nevada (without state income tax)
- New Hampshire
- Pennsylvania.
- South Dakota (without state income tax)
- Tennessee (without state income tax)
- Texas (without state income tax)
- Washington (without state income tax)
- Wyoming (without state income tax)
