Investing Retirement Planning State Income Taxes on Retirement Income By Tonya Moreno, CPA Tonya Moreno, CPA Tonya Moreno is a licensed CPA with about 15 years of diversified accounting, tax, and management experience. She is an expert in the field who has worked as a tax accountant for many large, multi-state corporations. She not only has experience in preparing state and federal tax returns, but has also dealt with complex tax issues with large amounts of money at stake. Today, Tonya serves as the chief financial officer of Maslonka Powerline Services in Spokane, Washington. learn about our editorial policies Updated on April 8, 2021 Reviewed by Janet Berry-Johnson Reviewed by Janet Berry-Johnson Twitter Janet Berry-Johnson is an expert in taxes and accounting whose expertise is based in a 10-year career as a certified public accountant. learn about our financial review board In This Article View All In This Article States That Exempt Social Security Benefits Taxes on Social Security Benefits Exemptions for Military Pensions State Taxes and Government Pensions Best and Worst States for Retirees Photo: Tinpixels / Getty Images 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: AlabamaArizonaArkansasCaliforniaDelawareGeorgiaHawaiiIdahoIllinoisIndianaIowaKentuckyLouisianaMaineMarylandMassachusettsMichiganMississippiNew HampshireNew JerseyNew YorkNorth CarolinaOhioOklahomaOregonPennsylvaniaSouth CarolinaTennesseeVirginiaWisconsin 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: AlabamaHawaiiIllinoisIowaKansasLouisianaMassachusettsMichiganMississippiNew JerseyNew YorkOhioPennsylvaniaWisconsin 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: AlabamaHawaiiIllinoisKansasLouisianaMassachusettsMichigan (for taxpayers born before 1946)MississippiNew YorkPennsylvania 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. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit 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.