The location you choose for your retirement can significantly impact your post-9-to-5 lifestyle. While many states do not tax Social Security benefits, others may tax different forms of retirement income, such as pensions or distributions. Whether you are considering relocating to be closer to family or searching for the perfect community for your retirement adventures, understanding how your new state might tax your income is crucial for effective budgeting and decision-making.
Below is a comprehensive breakdown of state-by-state tax policies, deductions, and credits to assist you in optimizing your retirement savings, based on the 2025 tax season.
**Alabama**
Retirees in Alabama do not pay state income tax on Social Security benefits or pensions. However, withdrawals from 401(k) and IRAs are subject to the state’s income tax rate ranging from 2% to 5%.
**Alaska**
Alaska does not have a state income tax, ensuring that retirement income is not subjected to additional taxation, regardless of investment sources.
**Arizona**
Arizona imposes a flat 2.5% tax on all income, including taxable retirement income. Exceptions include tax exemptions for retired military and spouses. Beneficiaries of the Arizona State Retirement System must pay taxes on pension distributions exceeding $2,500.
**Arkansas**
Residents of Arkansas are subject to a graduated income tax rate of 2% to 3.9%. There are exemptions for military pensions, employer-paid pension disbursements, and IRA withdrawals for individuals aged 59 1/2 or older.
**California**
California has a high state income tax rate, with multiple tax brackets ranging from 1% to 14.4%. Residents can exempt Social Security benefits but are taxed on federally taxable retirement income. Tax credits are available for qualifying seniors.
**Colorado**
Colorado recently reduced its state income tax to 4.25%. Various deductions are offered based on age, allowing for reductions in taxable retirement income and exemptions for Social Security benefits at age 65.
By understanding the tax implications of your retirement income in different states, you can make informed decisions to enhance your financial stability during your golden years.
Tax Information for Connecticut:
Following a tax cut in 2024, Connecticut’s state income tax rate now varies from 2% to 6.99% based on income brackets. If your adjusted gross income is under $75,000 as a single filer or $100,000 for joint filers, you can exclude 100% of Social Security benefits and all other retirement income. Additional exemptions were included in the legislation for singles earning between $75,000 and $100,000, and married couples filing jointly with incomes between $100,000 and $150,000.
Connecticut is gradually eliminating its income tax on non-Roth IRA account distributions for those above the exempt thresholds. Starting in 2024, 50% of the income will be exempt, increasing from 25% in 2023. By tax year 2025, 75% will be exempt, and from 2026 onwards, IRA income will be fully exempt.
Quick facts for Connecticut:
– Social Security: Partially taxable
– Pensions: Partially taxable
– 401(k) and IRA distributions: Partially taxable
Tax Information for Delaware:
Residents of Delaware with a taxable income between $2,000 and $60,000 are subject to state income taxes ranging from 2.2% to 5.55%. Those earning $60,000 or more face a 6.6% state income tax. Individuals under age 60 can exempt only $2,000 of their retirement income, while older seniors can deduct $12,500 from their pension and other eligible retirement income.
Quick facts for Delaware:
– Social Security: Not taxable
– Pensions: Taxable
– 401(k) and IRA distributions: Taxable
Tax Information for Florida:
Florida’s lack of state personal income taxes has made it a popular choice for retirees. Retirement income, whether from pensions or investments, is not subject to state taxes in Florida.
Quick facts for Florida:
– Social Security: Not taxable
– Pensions: Not taxable
– 401(k) and IRA distributions: Not taxable
Tax Information for Georgia:
Georgia has a flat state income tax of 5.39% for 2024, with planned reductions of 0.10% annually until reaching 4.99% by 2028. The state does not tax Social Security benefits and provides significant exclusions for other retirement income. Seniors aged 62 and above can exclude $35,000 of taxable retirement income, increasing to $65,000 at age 65.
Quick facts for Georgia:
– Social Security: Not taxable
– Pensions: Partially taxable
– 401(k) and IRA distributions: Partially taxable
Tax Information for Hawaii:
Retirees in Hawaii do not pay state tax on income from public or private pensions. However, other retirement income is taxable, with the state having one of the highest income tax rates in the U.S., capping at
Upon retirement, you may receive income from various sources such as pensions, 401(k)s, or IRAs. Just note that early distributions are subject to taxes. Additionally, if you utilized the 10-year averaging method for your lump sum retirement payments, you must factor that into your state tax obligations.
Here are some quick tax facts for different states:
Illinois:
– Social Security: Not taxable
– Pensions: Not taxable
– 401(k) and IRA distributions: Not taxable
Indiana:
– Residents will see a tax reduction in 2024, with the flat state income tax dropping to 3.05%.
– All retirement income, except Social Security benefits, is subject to tax.
– Seniors aged 65 and above may be eligible for tax breaks.
Iowa:
– Tax rates for Iowa residents are decreasing gradually between 2024 and 2026.
– Seniors aged 55 and older are exempt from paying state income tax on retirement income.
Kansas:
– Starting in 2024, Social Security benefits are not taxed in Kansas.
– Other retirement income is subject to state tax, excluding government and military pensions.
Kentucky:
– The state income tax rate reduced to 4% for 2024.
– Kentucky does tax retirement income but offers exclusions for seniors.
Louisiana:
– Louisiana’s income tax rate was reduced to 3% in 2025.
– State income tax applies to retirement income, with exclusions for seniors aged 65 and above.
Maine:
– Maine’s graduated income tax rate applies to all retirement income.
– There is a pension income deduction and a specific process for deducting exempt Social Security benefits.
Maryland:
– Maryland taxes all retirement income at varying rates.
– Seniors aged 65 and older qualify for specific exemptions and exclusions based on their retirement income sources.
Please let me know if you need any more information or assistance!
Here is a rewritten version of the text you provided:
Massachusetts:
Massachusetts taxes most retirement income using a 5% state income tax rate. Seniors may qualify for a refundable credit if they meet certain income thresholds based on their filing status. There is also a 4% surtax for residents earning over $1,053,750 annually, and retirees aged 65 or older can claim a $700 exemption. Social Security is not taxable, but pensions, 401(k) distributions, and IRA distributions are taxable.
Michigan:
Michigan’s flat state income tax rate increased to 4.25% in 2024, with changes to the pension deduction laws as part of a transition away from the three-tier retirement income tax system. The maximum deduction against retirement income varies based on age, with full deductions available to those 79 or older in 2024. A phased approach allows younger retirees to claim a percentage of the deduction until all retirees can claim the full deduction by 2026. Social Security is not fully taxable, and pensions, 401(k) distributions, and IRA distributions are partially taxable.
Minnesota:
Minnesota taxes all retirement income, including Social Security, using state income tax rates ranging from 5.35% to 9.85%. Seniors aged 65 and older may qualify for a deduction, subject to specific AGI limits. Social Security is partially taxable, while pensions, 401(k) distributions, and IRA distributions are taxable.
Mississippi:
In Mississippi, only early withdrawals from retirement accounts are taxable, while other retirement income is exempt from the state’s flat 4.7% income tax rate. The tax rate is set to decrease to 4.4% in 2025 and 4% in 2026. Social Security, pensions, 401(k) distributions, and IRA distributions are not taxable.
Missouri:
Missouri taxes private retirement income at rates between 2% and 4.7%, with deductions available for different filing statuses. Public pensioners can exempt a portion of their income up to the maximum Social Security benefit amount, with reductions for exempt Social Security income. Social Security is not taxable, but pensions, 401(k) distributions, and IRA distributions are taxable.
Montana:
Montana has two tax brackets with rates of 4.7% and 5.9%. Both retirement and Social Security income are taxable, with limited deductions available. Residents aged 65 and older can subtract $5,500 from their taxable income. Social Security, pensions, 401(k) distributions, and IRA distributions are taxable.
Nebraska:
Social Security benefits are not taxable in Nebraska as of 2024, but all other retirement income is subject to a maximum income tax rate of 5.2%. The state is gradually reducing taxes to 3.99% by 2027. Social Security is not taxable, but pensions, 401(k) distributions, and IRA distributions are taxable.
Taxable Distributions by State
Nevada:
Nevada stands out as a tax-friendly state for retirees, with no state income tax on retirement income. This means that retirees do not have to worry about paying extra taxes on Social Security benefits, pensions, or 401(k) and IRA distributions.
New Hampshire:
Similarly, New Hampshire does not have a state income tax on retirement income, including Social Security benefits and pensions. The state used to tax interest and dividends but repealed this tax in December 2024. Retirees aged 65 and older can benefit from a $1,200 exemption to reduce their tax burden.
New Jersey:
New Jersey has a graduated state income tax rate ranging from 1.4% to 10.75%. While the state does tax retirement income, seniors aged 62 and older with adjusted gross incomes under $150,000 are eligible for significant deductions. These deductions can range from $50,000 to $100,000 for joint filers and up to 50% of taxable retirement income for those with AGIs between $100,001 and $150,000.
New Mexico:
Retirement income in New Mexico is subject to state income tax rates ranging from 1.7% to 5.9% in 2024. Residents aged 65 and older can claim an $8,000 exemption, while those who reach age 100 or older are exempt from state income tax.
New York:
Residents of New York pay state income tax on retirement income ranging from 4% to 10.9%. However, retirees who turn 59 1/2 during the tax year may qualify to exclude up to $20,000 of their retirement income from their adjusted gross income.
North Carolina:
Retirement income in North Carolina is subject to a 4.5% state income tax rate in 2024, which is expected to decrease to 3.99% by 2027. The state does not offer deductions for seniors.
North Dakota:
Most retirement income in North Dakota is subject to state income tax, but residents with a taxable income of $47,150 or less are exempt. The tax rate is 1.95% for incomes between $47,151 and $238,200, increasing to 2.5% for incomes above that threshold in 2024.
Ohio:
Ohio recently revised its state income tax brackets, with rates of 2.75% for AGIs of $26,051 to $100,000 and 3.5% for incomes above $100,000. The state taxes most retirement income, offering credits such as a $50 annual senior citizen credit for residents aged 65 and older.
Here is the information you provided rewritten for clarity:
Ohio:
– Social Security: Not taxable
– Pensions: Taxable
– 401(k) and IRA distributions: Taxable
Oklahoma:
– Retirement income taxed based on a graduated state income tax rate
– Residents can subtract up to $20,000 of taxable retirement income from 2024 tax year
– Social Security not taxable
– Pensions, 401(k), and IRA distributions are taxable
Oregon:
– Most retirement income taxed at rates ranging from 4.75% to 9.9%
– Exceptions for Social Security benefits, federal and railroad pensions, and previously taxed retirement income
– Eligible for a 9% retirement income credit if income is below certain thresholds
Pennsylvania:
– No state income tax on retirement income for seniors
– Exempt from tax: Pensions, 401(k), IRA distributions, and Social Security benefits
– Exception for annuity income not part of an employer’s retirement plan
Rhode Island:
– Taxes all retirement income, including Social Security, with brackets ranging from 3.75% to 5.99%
– Exemptions for Social Security benefits and up to $20,000 of taxable retirement income
– Income limits for exemptions specified for different filing statuses
South Carolina:
– Most retirement income taxable using state income tax rates
– Deductions available for retirees based on age
– Additional income tax deduction for taxpayers age 65 and older
South Dakota:
– No state income taxes on retirement income
Tennessee:
– No state income tax on retirement income or interest and dividends
Texas: (Incomplete)
Retirement income in several states is protected from state taxes due to their respective state laws. Here are some key points about the tax treatment of retirement income in different states:
Texas:
– Retirement income, including Social Security benefits, pensions, 401(k), and IRA distributions, is not taxable as per the state constitution.
Utah:
– Utah imposes a flat state income tax rate of 4.55% on all retirement income, including Social Security benefits. Seniors can get tax credits against their taxable Social Security or opt for a retirement credit starting at age 72.
Vermont:
– Vermont has a graduated state income tax rate ranging from 3.35% to 8.75% based on income levels. Most retirement income is taxable, but there is an exclusion of up to $10,000 for retirement income not subject to Social Security withholding for eligible individuals.
Virginia:
– Senior residents of Virginia pay between 3% and 5.75% in state income tax on most retirement income. Those aged 65 and older can claim a deduction of up to $12,000, with adjustments based on income thresholds.
Washington:
– Washington State does not have a state income tax, making retirement income tax-free. However, individuals earning over $270,000 annually may be subject to a capital gains tax of 7%.
Washington D.C.:
– Retirement income in Washington D.C. is taxed with rates ranging from 4% to 10.5%. Seniors aged 65 and older can add $1,300 to their standard deduction.
West Virginia:
– West Virginia has reduced personal income tax rates, ranging from 2.36% to 5.12%, on most retirement income. Seniors aged 65 and older can deduct $8,000 from their taxable income, irrespective of the income source.
Wisconsin:
– Residents of Wisconsin pay state income tax ranging from 3.50% to 7.65% on their retirement benefits. Deductions are available based on income levels, with additional standard and personal deductions for seniors aged 65 and older.
Wyoming:
– Retirees in Wyoming are exempt from state income tax on their retirement income.
These state-specific tax regulations impact how retirees are taxed on their retirement income, including Social Security benefits, pensions, and distributions from retirement accounts.
Retirement Income Tax Guide
⭐ Quick Facts: Wyoming
– Social Security: Not taxable
– Pensions: Not taxable
– 401(k) and IRA distributions: Not taxable
Quick Reference: How States Tax Retirement Income
Whether you are considering relocating to a different state or are interested in your current state’s tax policies, here is a convenient breakdown of states categorized by how they tax income, pensions, retirement withdrawals, and Social Security.
States with No Personal Income Tax:
– Alaska
– Florida
– Nevada
– New Hampshire
– South Dakota
– Tennessee
– Texas
– Washington
– Wyoming
States with Personal Income Tax that Do Not Tax Pensions:
– Alabama
– Hawaii
States with Personal Income Tax that Do Not Tax Retirement Income:
– Illinois
– Iowa
– Mississippi
States that Tax Social Security:
– Colorado
– Connecticut
– Minnesota
– Montana
– New Mexico
– Rhode Island
– Utah
– Vermont
– West Virginia
How Retirement Income is Taxed by the IRS
Your federal taxable income, also known as the adjusted gross income (AGI), serves as the basis for all state income taxes. Understanding how the IRS taxes your retirement income can ensure accurate reporting of your AGI and prevent overpayment or underpayment of taxes.
Federal Taxes on Social Security
The IRS utilizes a straightforward calculation to determine the taxability of your Social Security benefits. By adding 50% of your Social Security benefits to your total annual income, your combined income for tax purposes is determined. The portion of your benefits subject to tax depends on your combined income and filing status.
0% of benefits taxable:
– Single or head of household: Less than $25,000 in combined income
– Couples filing jointly: Less than $32,000 in combined income
50% of benefits taxable:
– Single or head of household: $25,000 to $34,000 in combined income
– Couples filing jointly: $32,000 to $44,000 in combined income
85% of benefits taxable:
– Single or head of household: More than $34,000 in combined income
– Couples filing jointly: More than $44,000 in combined income
If you prefer to pay taxes gradually rather than in a lump sum at tax time, you can opt for the IRS to withhold taxes from your monthly benefits.
Federal Taxes on Other Retirement Income
Most retirement income is subject to standard income tax rates within your tax bracket, including pension payments, interest payments, nonqualified dividends, traditional IRA and 401(k) distributions, savings bond interest, and annuity earnings. Certain income streams may be exempt from federal income taxes, such as municipal bond interest, after-tax pension contributions, Roth IRA and Roth 401(k) withdrawals after age 59 1/2, and life insurance proceeds received as a beneficiary.
Income from selling investments held for over a year, like stocks and bonds, may be subject to
Consulting with a tax professional experienced in pensions and retirement accounts is the most effective way to ensure you are not overpaying your taxes. If hiring a professional is not feasible for you, the IRS provides free basic tax return preparation services through its Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. VITA is accessible to individuals earning up to $64,000 annually, while the TCE program caters to seniors aged 60 and above.
For further insights:
– Discover tax breaks available to individuals over 50.
– Explore states that tax Social Security benefits and recent changes in taxation.
– Learn about smart ways for seniors to save on car insurance.
– Find clever strategies for saving money and enhancing financial well-being.
– Uncover the best discounts for individuals aged 50 and above.
– Access tips for saving on homeowners insurance tailored to seniors and retirees.
– Gain knowledge on budgeting during retirement and maximizing financial stability on a fixed income.
– Obtain answers to frequently asked questions regarding retirement savings, taxation, and tax benefits for seniors.
– Expand your understanding of retirement funds, tax obligations, and opportunities for savings through our comprehensive personal finance guidance.
At what age do I become exempt from paying taxes on Social Security benefits or retirement income?
Contrary to a common misconception, there is no age threshold for federal taxes on retirement income or Social Security. Taxability of retirement funds is determined by income levels, not age. If your total income exceeds $25,000 as a single filer or $32,000 as a joint filer, you are required to pay taxes on your Social Security benefits, irrespective of age.
Is a low tax burden the primary factor in choosing a retirement destination?
Not necessarily. While Alaska is frequently cited for having the lowest tax burden in the U.S., the overall cost of living, particularly in housing and utilities, is notably higher. When deciding on a retirement location, factors such as family support, access to healthcare, and quality of life should also be considered based on your preferences and interests.
Are there additional tax breaks available to retirees?
Apart from exemptions on retirement income taxes, certain states provide tax credits or deductions for property taxes, utility expenses, and may offer increased deductions for small businesses owned post the age of 65. It is advisable to check state government websites for senior-specific tax guides and explore potential benefits. Refer to our guide on lesser-known tax breaks for individuals aged 50 and above.
Editorial Note: The information presented here is for educational purposes and does not constitute investment advice or a recommendation to purchase specific assets or adopt particular investment strategies. Prior to making any investment decisions, conduct independent research on products and strategies.
About the Author:
Heather Petty is a finance writer specializing in consumer and business banking, personal and home lending, debt management, and saving strategies. Motivated by a negative experience with a dubious mortgage broker during her initial home purchase, Heather is dedicated to aiding others in avoiding
Please could you rewrite the following text in a way that maintains its original meaning and structure, but with a more formal tone and without using abbreviations or incomplete sentences. Thank you for your assistance with this request.
