State Income Taxes on Retirement Income

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Updated on April 8, 2021

Reviewed by

Elderly couple talking about financial matters at their dining table — Photo:
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The majority of states—43 as of tax year 2021—impose personal income taxes. Another taxes 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 keep in mind that some of these states without income taxes have high taxes in other areas.

Key Takeaways

Each state has a different mix of tax breaks for retirees—most exempt certain types of retirement income, but they tax others.
Thirty states exempt all Social Security benefits from taxation.
Nine states include Social Security benefits in taxable income, but they provide exclusions, exemptions, and deductions.
Alabama, Hawaii, and Illinois exempt nearly all retirement income; Mississippi and Pennsylvania exempt all retirement income, including 401(k) and IRA distributions.

States That Exempt Social Security Benefits

Thirty states exempt all Social Security benefits from taxation:

Alabama
Arizona
Arkansas
California
Delaware
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
New Hampshire
New Jersey
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin

Note

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming are the states with no income tax at all as of 2021. New Hampshire has a tax, but only on interest and dividends. Social Security income there 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(er)s, 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.

Note

Tax law is always 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:

Alabama
Hawaii
Illinois
Iowa
Kansas
Louisiana
Massachusetts
Michigan
Mississippi
New Jersey
New York
Ohio
Pennsylvania
Wisconsin

Note

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 states’ pensions, however.

Arizona, Idaho, Kansas, Louisiana, New York, and Oklahoma provide greater tax relief plans for their states’ pension plans than for out-of-state government pension plans.

Only 10 states exclude all federal, state, and local pension income from taxation:

Alabama
Hawaii
Illinois
Kansas
Louisiana
Massachusetts
Michigan (for taxpayers born before 1946)
Mississippi
New York
Pennsylvania

Note

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.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Wolters Kluwer. “Wolters Kluwer Outlines State Tax Considerations for Retirees.”
Tax Foundation. "State Individual Income Tax Rates and Brackets for 2020."
Colorado Department of Revenue. “Income 25: Pension and Annuity Subtraction.” Page 2.
State of Connecticut Department of Revenue Services. “Taxability of Social Security Benefits for Connecticut Income Tax Purposes.” Page 1.
Kansas Department of Revenue. ”Kansas 2019 Income Tax.” Page 17.
Minnesota Department of Revenue. "Age 65 or Older or Disabled Subtraction."
Missouri Department of Revenue. "2019 Missouri Income Tax Refence Guide." Page 6.
New Mexico Taxation and Revenue Department. “Does New Mexico Offer a Tax Break to Retirees?”
State of Rhode Island Division of Taxation. “Inflation-Adjusted Amounts Set for Tax Year 2020.” Pages 4-5.
Utah State Legislature. “59-10-1019. Definitions—Nonrefundable Retirement Tax Credits.”
West Virginia State Tax Department. “West Virginia Personal Income Tax Act.”
The Pew Charitable Trusts. “States Compete for Military Retirees.”
NARFE.org. “State Tax Treatment of Federal Annuities Tax Year 2019.”
Mississippi Department of Revenue. “Individual Income Tax FAQs.”
Pennsylvania Department of Revenue. “Gross Compensation.”
National Conference of State Legislatures. “State Personal Income Taxes on Pensions and Retirement Income: Tax Year 2014.” Pages 9, 12.
State of California Franchise Tax Board. “2019 Pension and Annuity Guidelines.” Page 4.

Key Takeaways

States That Exempt Social Security Benefits

Note

Taxation of Social Security Benefits

Note

State Tax Exemptions for Military Pensions

Note

State Taxes and Government Pensions

Note

The Best and Worst States for Retirees

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