Seven states have zero personal income tax at the state level. Another two states tax only certain types of investment income (like interest and dividends) but not other income (like wages and pensions). Clearly, all else being equal, these states are the most tax-friendly to all taxpayers, retirees included.
- States with no personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming
- States where only certain investment income is taxed: New Hampshire, Tennessee
But, for retirees, the list of states that offer the chances of zero state income taxation (or at least taxation that is far below what you would pay in your working years) is much longer. Depending on the make-up of your retirement income picture, you might be looking at low or no state income tax in retirement even if you don’t live in the above nine tax havens.
For example, 29 states and the District of Columbia exclude all Social Security income from taxation. Three states on this list – Hawaii, Illinois, and Pennsylvania – also exclude pension and qualified retirement plan income. Fifteen states include some level of capped exclusions for pension and other retirement income, from a low of $4030 per spouse (Montana) to a high of $65,000 per spouse (Georgia). Twenty-four states also offer additional deductions, exemptions or credits to people age 65+, leading to even lower taxes for many retirees. 1
California as a Low-Tax State?
In order to explore what the state tax landscape looks like for retirees, we estimated the 2019 state personal income tax burden of the following two households in all 50 states and the District of Columbia. 2