Daně a účetnictví10 ledna, 2023
Finding a Tax-friendly State for Retirement
Wolters Kluwer Outlines State Tax Considerations for Retirees
A variety of factors play a role in where retirees choose to spend their golden years. These factors can include:
- climate
- family and friends networks
- healthcare costs and options
- real estate, grocery, gasoline, and other basic living costs
- transportation options
- relocation costs
But retirees shouldn’t overlook the impact state taxes can have on their retirement nest egg. Specific taxes to consider include:
- state taxes on Social Security and retirement or pension benefits
- state income tax rates
- state and local sales tax
- state and local property taxes
- state estate taxes
How Do States Tax Retirement, Pension, and Social Security Income?
Tax treatment of retirement, pension, and Social Security benefits varies widely from state to state. Some states:
- impose no income tax on retirement or other income
- exempt all or some retirement or Social Security income
- provide credits for retirement income
- tax all retirement income
Individuals determine income tax liability in most states by starting with their federal adjusted gross income (AGI). So, taxpayers start with the amount of Social Security income or other forms of retirement income included in federal AGI before any state adjustments.
What States Do Not Tax Retirement Income?
8 states do not tax individual retirement or other income:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
New Hampshire imposes a tax only on dividend and interest income.
4 states exempt all or most retirement income:
- Hawaii
- Illinois
- Mississippi
- Pennsylvania
What States Tax Some Retirement Income?
21 states tax some, but not all, retirement or pension income. Many of these states limit the exemption amounts based on AGI thresholds:
- Alabama
- Arkansas
- Colorado
- Connecticut
- Delaware
- Georgia
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Michigan
- Missouri
- Montana
- New Jersey
- New York
- Oklahoma
- Rhode Island
- South Carolina
- Virginia
- Wisconsin
3 states provide a credit for retirement or pension income:
- Ohio
- Oregon
- Utah
What States Tax All or Most Private Retirement Income?
13 states and the District of Columbia tax all or most private retirement or pension income:
- Arizona
- California
- District of Columbia
- Idaho
- Indiana
- Kansas
- Massachusetts
- Minnesota
- Nebraska
- New Mexico
- North Carolina
- North Dakota
- Vermont
- West Virginia
What States Tax Social Security Income?
12 states tax some or all Social Security income. Most of these states exempt a part of this income based on AGI thresholds.
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
What States Made Retirement Income Changes Over the Last Year?
- Connecticut: Established a schedule to provide a deduction for all income received from individual retirement account (IRA) distributions by the 2026 tax year. This deduction corresponds to a phase-out schedule for income received from other private pension and annuity plans
- Colorado: Eliminated the cap on deductible Social Security benefits for tax years beginning after 2021
- Arizona, Missouri, Nebraska, and North Carolina: Created exemptions or deductions for all military retirement income and benefits
- Nebraska: Initiated plans to provide an exemption from personal income tax for all Social Security income after the 2029 tax year
- New Jersey: Changed the retirement income deduction from a dollar limit to a percentage limit based on filing status and increased the AGI eligibility threshold from $100,000 to $150,000. The changes apply to tax years beginning after 2020
- North Dakota: Expanded a deduction for Social Security income to all benefits included in federal AGI for tax years beginning after 2020
- Utah: Enacted a credit for Social Security and military retirement income beginning after the 2020 tax year
What Are Some Other State Retirement Tax Considerations
Of course, tax treatment of retirement income isn’t the only tax consideration to think about. What a state loses in revenue by providing favorable treatment to retirement income, it can make up by relying on more revenue from:
- higher income tax rates
- sales and use taxes
- property taxes
- estate taxes
- fees
State income tax rates: Income tax rates can have a significant financial impact on retirees in determining where they want to live. The rates can differ widely across the country.
- California, the District of Columbia, Hawaii, Iowa, Minnesota, New Jersey, New York, Oregon, and Vermont impose the highest rates on the top income tax brackets (more than 8%)
- Arizona, Colorado, Illinois, Indiana, Michigan, North Dakota, Ohio, Pennsylvania, and Utah impose the lowest rates (less than 5%)
State and local sales taxes: 45 states and the District of Columbia impose a sales and use tax. States with relatively high state sales tax rates (7% or more) include California, Indiana, Mississippi, Rhode Island, and Tennessee. Local sales and use taxes, imposed by cities, counties and other special taxing jurisdictions, like fire protection and library districts, also can add significantly to the rate.
State and local property taxes: High property taxes can strain the limited resources of retirees. Fortunately, many states and some local jurisdictions offer senior citizen homeowners some form of property tax exemption, credit, abatement, tax deferral, refund or other benefits. These tax breaks also apply to renters in some jurisdictions. The benefits typically have qualifying restrictions that include age and income of the beneficiary.
State estate taxes: Most states no longer impose an estate tax. Estate tax exemption amounts vary in states that continue to impose the tax. Examples of 2022 exemption amounts include:
- $9.1 million in Connecticut
- $5.49 million in Hawaii
- $4 million in Illinois
- $1 million in Massachusetts
- $6.11 million for New York
Source: Wolters Kluwer, 2023
Permission for use granted.
State taxation of retirement, pension, and social security income
Rate listed below is the general state rate. Most states authorize additional local sales and use taxes, which are not included.
| Jurisdiction | Starting Point | Social Security Benefits | Retirement or Pension Income | |
| Alabama | 4% | Ala. Code §40-23-26 | ||
| Arizona | 5.6% | Ariz. Rev. Stat. §42-5010 | ||
| Arkansas | 6.5% |
Food rate is .125%. |
Ark. Code. Ann. §26-52-302 | |
| California | 7.25% |
The 7.25% current total statewide base includes 1% that goes to city and county (local) funds and operations. We recommend you reference cited authority for more information. |
Cal. Rev. & Tax Code §6051, Cal. Rev. & Tax Code §6051.2, Cal. Const. art. XIII, §35, Cal. Const. art. XIII, §36, Cal. Rev. & Tax Code §6051.3, Cal. Rev. & Tax Code §6201, Cal. Rev. & Tax Code §6051.7, Cal. Rev. & Tax Code §6201.7, Cal. Gov. Code §99040 |
|
| Colorado | 2.9% |
An additional state sales tax rate applies to sales of marijuana and marijuana products. We recommend you reference cited authority for more information. |
Colo. Rev. Stat. §39-26-105 | |
| Connecticut | 6.35% |
7.75% on motor vehicles that cost more than $50,000 (with certain exceptions), jewelry that costs more than $5,000, and certain clothing, footwear, and other items that cost more than $1,000. We recommend you reference cited authority for more information. |
Conn. Gen. Stat. §12-408,Conn. Gen. Stat. §12-411 | |
| District of Columbia | 6% | D.C. Code Ann. §47-2002 | ||
| Florida | 6% | Fla. Stat. ch. 212.05, | ||
| Georgia | 4% |
Sales of motor fuel for highway use exempt from 4% state sales and use tax rate. We recommend you reference cited authority for more information. |
Ga. Code. Ann. §48-8-30, Ga.Code. Ann. §48-8-3.1 | |
| Hawaii | 4% |
0.5% rate for wholesalers/manufacturers We recommend you reference cited authority for more information. |
Haw. Rev. Stat. §237-13 | |
| Idaho | 6% | Idaho Code §63-3619 | ||
| Illinois | 6.25% |
Grocery food, drugs, medical appliances, and modifications to make a motor vehicle usable by a disabled person are taxed at 1%. |
35 ILCS 105/3-10 | |
| Indiana | 7% | Ind. Code §6-2.5-2-2 | ||
| Iowa | 6% | Iowa Code §423.2 | ||
| Kansas | 6.5% |
6.15% July 1, 2013 - June 30, 2015. |
Kan. Stat. Ann. §79-3603,Kan. Stat. Ann. §79-3703 | |
| Kentucky | 6% | Ky. Rev. Stat. Ann. §139.200,Ky. Rev. Stat. Ann. §139.310 | ||
| Louisiana | 4.45% |
|
La. Rev. Stat. Ann. §47:302,La. Rev. Stat. Ann. §47:331,La. Rev. Stat. Ann. §51:1286,La. Rev. Stat. Ann. §47:321 | |
| Maine | 5.5% |
We recommend you reference cited authority for more information. |
Me. Rev. Stat.Ann. tit.36,§1811 | |
| Maryland | 6% | Md. Code Ann. §11-104(a) | ||
| Massachusetts | 6.25% | Mass. Gen. Laws ch. 64H,§2 | ||
| Michigan | 6% | Mich. Comp. Laws §205.52(1) | ||
| Minnesota | 6.875% | Minn. Stat. §297A.62(1) and (1a), Minn Const Art. XI,§15 | ||
| Mississippi | 7% | Miss. Code. Ann. §27-65-17 | ||
| Missouri | 4.225% |
Total rate of 4.225% consists of general sales/use tax of 4%, additional sales tax of 0.10% for soil/water conservation and state parks, and additional sales tax of 0.125% for wildlife conservation. Grocery food taxed at reduced rate of 1.225%. |
Mo. Rev. Stat. §144.020, Mo. Const. art. IV, §43(a), Mo. Const. art. IV, §47(a) | |
| Nebraska | 5.5% |
Adjusted biennially. |
Neb. Rev. Stat. §77-2701.02 | |
| Nevada | 6.85% | Nev. Rev. Stat. §372.105,Nev. Rev. Stat. §374.110,Nev. Rev. Stat. §377.040 | ||
| New Jersey | 6.625% | N.J. Stat. Ann. §54:32B-3 | ||
| New Mexico | 5.125% |
Compensating tax rate on services is 5%. Rate on services increases to 5.125% on July 1, 2021. |
N.M. Stat. Ann. §7-9-4 | |
| New York | 4% | N.Y. Tax Law, §1110 | ||
| North Carolina | 4.75% | N.C. Gen. Stat. §105-164.4 | ||
| North Dakota | 5% | N.D. Cent. Code §57-39.2-02.1 | ||
| Ohio | 5.75% | Ohio Rev. Code Ann. §5739.02 | ||
| Oklahoma | 4.5% | Okla. Stat. tit. 68, §1354, Okla. Stat. tit. 68, §1402 | ||
| Pennsylvania | 6% | 72 P.S. §7202 | ||
| Rhode Island | 7% |
|
R.I. Gen. Laws §44-18-18 | |
| South Carolina | 6% |
|
S.C. Code Ann. §12-36-910, S.C. Code Ann. §12-36-1110 | |
| South Dakota | 4% | S.D. Codified Laws §10-45-2 | ||
| Tennessee | 7% | The rate on food is 5%. Additional tax of 2.75% imposed on any single item sold in excess of $1,600 but not more than $3,200. We recommend you reference cited authority for more information. |
Tenn. Code. Ann. §67-6-202 | |
| Texas | 6.25% | Tex. Tax Code Ann. §151.051 | ||
| Utah | 4.85% |
Food and food ingredients are taxed at reduced rate of 1.75%. |
Utah Code Ann. §59-12-103(2) | |
| Vermont | 6% | Vt. Stat. Ann. tit. 32, §9771 | ||
| Virginia | 4.3% |
Additional 1% local rate imposed in all localities. Several areas have an additional regional or local tax. Grocery food taxed at reduced rate of 2.5% (1.5% state tax and 1% local option tax). |
Va. Code. Ann. §58.1-603 | |
| Washington | 6.5% | Wash. Rev. Code §82.08.020 | ||
| West Virginia | 6% |
Reduced rates apply to long-term vehicle lease payments, and to sales and uses of motor vehicles, gasoline, and certain fuels. |
W. Va. Code §11-15-3(b)W. Va. Code §11-15A-2 | |
| Wisconsin | 5% | Wis. Stat. §77.52(1) | ||
| Wyoming | 4% | Wyo. Stat. Ann. §39-15-104 |