2022 Review: How Do States Tax Retirement and Social Security Income?

There were numerous developments during the 2021 state legislative sessions on the taxation of retirement and Social Security income. Most of the legislation focused on eliminating state tax on military retirement income. But there were also significant changes to the state taxation of other retirement income and benefits.

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:

• Illinois
• Hawaii
• 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 federal adjusted gross income (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

Connecticut is phasing in a deduction for all income received from individual retirement account (IRA) distributions beginning with the 2023 tax year. This matches a phase in schedule for deduction of all income received from other private pension and annuity plans.

New Jersey changed the retirement income deduction beginning with the 2020 tax year from a dollar limit to a percentage limit based on filing status. It also increased the AGI eligibility thresholds.

The Maryland governor announced a 2022 tax package that would exempt retirement income from taxation. The Connecticut governor also proposed a tax plan that would accelerate the phase out of the state’s tax on pension and annuity income.

3 states provide a credit for retirement or pension income.

• Ohio
• Oregon
• Utah

What States Tax All or Most Private Retirement Income?

25 states and the District of Columbia tax all or most private retirement or pension income.

• Alabama
• Arizona
• Arkansas
• Connecticut
• Hawaii
• Illinois
• Iowa
• Kansas
• Louisiana
• Maine
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• New Jersey
• New York
• North Dakota
• Ohio
• Pennsylvania
• West Virginia 
• Wisconsin

What States Tax Military Retirement Income?

23 states now exempt all military retirement income from taxation.

• Colorado
• Delaware
• Georgia
• Idaho
• Indiana
• Illinois
• Iowa
• Kansas
• Kentucky
• Maryland
• Nebraska
• North Carolina
• Oklahoma
• Oregon
• Rhode Island
• South Carolina

Arizona and North Carolina are new members to this group of states. Utah offers a new credit for all military retirement pay.

Effective for tax years beginning after 2021, Indiana and Nebraska will also exempt all military retirement income from taxation.

The governors of Delaware and Vermont presented proposals this year to eliminate military retirement income from taxation.

13 states tax some, but not all, military retirement income.

• Arizona
• California
• Idaho
• Indiana
• Kansas
• Massachusetts
• Minnesota
• Nebraska
• New Mexico
• North Carolina
• North Dakota
• Vermont
• West Virginia

4 states and the District of Columbia tax all or most military retirement income.

• California
• New Mexico
• Vermont
• Virginia

What States Tax Social Security Income?

13 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
• North Dakota
• Rhode Island
• Utah
• Vermont
• West Virginia

North Dakota expanded its exemption to all taxpayers beginning with the 2021 tax year.

Nebraska initiated plans to provide a tax exemption for all Social Security income after the 2029 tax year.

Utah created a credit beginning with the 2021 tax year that phases out based on a taxpayer’s modified AGI and filing status.