Taxes in Retirement: How All 50 States Tax Retirees
We rated every state, plus Washington, D.C., on how retirees are taxed. We considered taxes on Social Security and other retirement income, tax exemptions for older residents, and the state's overall income, property and sales taxes.
Relocating in retirement is a rite of passage for many Americans, especially those with warmer climes on their minds.
But before you move for better weather, to be closer to the grandkids, or whatever, you should take the temperature of your budget – and how taxes and the cost of living will have a lasting impact in your golden years. Lower housing costs, for example, in a particular state could make your retirement savings last longer.
You also need to factor in state and local taxes in your destination location. They will certainly play a role in your bottom line.
So where does your current state and destination state fit in? We’ve ranked all 50 states, plus the District of Columbia, based on how they tax retirees.
States are listed alphabetically. Details on tax data sources and our ranking methodology can be found in the last slide.
Alabama
- Our Ranking: Tax-friendly.
- State Income Tax Range: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others) — 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others).
- Average Combined State and Local Sales Tax Rate: 9.22%.
- Median Property Tax Rate: $395 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
If you're a college football fan, perhaps you've thought about retiring to Alabama. But there are also non-football reasons to spend your golden years in the Yellowhammer State — like relatively low taxes for retirees. While most people end up paying the highest income tax rate, it's not too bad at only 5%. Plus, Social Security benefits and payments from traditional pension plans (i.e., defined benefit plans) are exempt.
Alabama also boasts the second-lowest median property tax rate in the country. Plus, all homeowners age 65 or older are exempt from state property taxes.
But Alabama fumbles when it comes to sales taxes. At 4%, the state rate is low, but some local governments tack on up to 7.5% in additional sales taxes. As a result, the state-wide average combined (state and local) sales tax rate is 9.22%, which is the fifth-highest in the nation.
For more information, see the Alabama State Tax Guide for Retirees.
Alaska
- Our Ranking: Mixed.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 1.76%.
- Median Property Tax Rate: $1,182 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Although the Last Frontier has no state income or sales tax, it isn't necessarily a tax haven for retirees. High property taxes have a lot to do with the mixed tax picture for seniors. The state also has very high tax rates for beer and other alcoholic beverages. So don't cry in your beer when you get your property tax bill in the mail.
There is, however, one unique perk if you live in Alaska — the state sends all permanent residents (who have lived there for at least one year) an annual dividend check from its oil wealth savings account. The 2020 payout was $992, which goes a long way in balancing out any bad tax news.
For more information, see the Alaska State Tax Guide for Retirees.
Arizona
- Our Ranking: Most tax-friendly.
- State Income Tax Range: 2.59% (on up to $54,615 of taxable income for married filers and up to $27,808 for single filers) — 4.5% (on taxable income over $500,000 for married joint filers and over $250,000 for single filers).
- Average Combined State and Local Sales Tax Rate: 8.4%.
- Median Property Tax Rate: $617 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Sunshine, sunshine, sunshine — and low taxes. The Grand Canyon State exempts Social Security benefits from state income taxes, plus up to $2,500 of income from federal and Arizona government retirement plans. Military retirement income is tax-free in Arizona, too. While plenty of other states have more generous exemptions, Arizona's low income tax rates for most people keep the net burden down.
Sales taxes are above average in the state — the average combined (state and local) rate is 8.4% (11th-highest in the nation). One retiree we spoke with mentioned how he would cross county lines to shop because of lower sales taxes. However, Arizona does not have an estate or inheritance tax, which makes it a more attractive retirement destination for wealthier seniors.
For more information, see the Arizona State Tax Guide for Retirees.
Arkansas
- Our Ranking: Most tax-friendly.
- State Income Tax Range: 2% (on taxable income from $4,800 to $9,499 for taxpayers with net income less than $23,600), 0.75% (on first $4,799 of taxable income for taxpayers with net income from $23,600 to $84,500), or 2% (on on first $4,300 of taxable income for taxpayers with net income over $84,500) — 3.4% (on taxable income from $14,300 to $23,599 for taxpayers with net income less than $23,600), 5.9% (on taxable income from $39,700 to $84,500 for taxpayers with net income from $23,600 to $84,500), or 5.9% (on taxable income over $8,500 for taxpayers with net income over $84,500).
- Average Combined State and Local Sales Tax Rate: 9.48%.
- Median Property Tax Rate: $612 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
There are a lot of good things to say about the overall state and local tax burden in the Natural State. For instance, Arkansas exempts Social Security benefits and up to $6,000 of retirement income from its state income tax. And, as a plus for veterans, all military pension income is tax-exempt. The top rate for taxpayers with net income over $84,500 also went from 6.6% to 5.9% starting in 2021. The state's property taxes are among the lowest in the nation, too.
However, sales taxes in Arkansas — which are levied on both food and clothing — are rather high. According to the Tax Foundation, Arkansas has the third-highest average combined state and local sales tax rate in the nation. But, overall, Arkansas is a very tax-friendly state for retirees.
For more information, see the Arkansas State Tax Guide for Retirees.
California
- Our Ranking: Tax-friendly.
- State Income Tax Range: 1% (on up to $18,650 of taxable income for married joint filers and up to $9,325 for those filing individually) — 13.3% (on more than $1,250,738 for married joint filers and $1 million for those filing individually).
- Average Combined State and Local Sales Tax Rate: 8.82%.
- Median Property Tax Rate: $729 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
California can be a difficult state to figure out when it comes to taxes on retirees. For instance, at 13.3%, the Golden State has the highest income tax rate in the country — but that rate is for millionaires. For middle- and lower-income folks, the rates are much lower. And while California doesn't tax Social Security income, most other forms of retirement income are fair game.
Sales taxes are relatively high, but the state's median property tax rate is not. In the end, when you balance out all the pros and cons, California is actually a good state for most retirees when it comes to taxes, thanks mainly to the reasonable income tax rates for ordinary seniors.
For more information, see the California State Tax Guide for Retirees.
Colorado
- Our Ranking: Most tax-friendly.
- State Income Tax Range: Flat 4.55%
- Average Combined State and Local Sales Tax Rate: 7.72%.
- Median Property Tax Rate: $494 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
If you'd like to retire early in the mountains (or at their feet), the Centennial State is a promising place to do it. In Colorado, taxpayers 55 and older get a generous retirement-income exclusion from state taxes, and it gets better when they reach 65. And when it comes to property taxes, not only does Colorado have one of the lowest median tax rates in the country, but seniors may qualify for an exemption of up to 50% of the first $200,000 of property value.
The one downside for retirees is that Colorado's sales taxes (which have a local component) are Rocky Mountain High: They can exceed 11% in some parts of the state. But, if you don't plan on shopping too much in retirement, then you shouldn't be hit too hard with the state's sales tax.
For more information, see the Colorado State Tax Guide for Retirees.
Connecticut
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 3% (on up to $20,000 of taxable income for married joint filers and up to $10,000 for those filing individually) — 6.99% (on the amount over $1 million for married joint filers and over $500,000 for those filing individually).
- Average Combined State and Local Sales Tax Rate: 6.35%.
- Median Property Tax Rate: $2,139 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
You don’t need a mystic to tell you the Constitution State is a tax nightmare for many retirees … but at least things are improving on the income tax front. For the 2020 tax year, only 28% of income from a pension or annuity is exempt for taxpayers with less than $75,000 of federal AGI (less than $100,000 for joint filers). But the exemption percentage will increase by 14% each year until it reaches 100% for the 2025 tax year.
Connecticut has the third-highest median property tax rate in the U.S., so the $10,000 cap on the federal tax deduction for state and local taxes stings a bit more here. The state offers property tax credits to homeowners who are at least 65 years old and meet income restrictions, though.
Connecticut also imposes an estate tax and a gift tax (it's the only state with a gift tax).
For more information, see the Connecticut State Tax Guide for Retirees.
Delaware
- Our Ranking: Most tax-friendly.
- State Income Tax Range: 2.2% (on taxable income from $2,001 to $5,000) — 6.6% (on taxable income above $60,000).
- Average Combined State and Local Sales Tax Rate: None.
- Median Property Tax Rate: $562 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
No sales tax, low property taxes, and no death taxes make Delaware a tax haven for retirees. It's easier to spoil the grandkids when you pay zero state or local sales tax on your in-state purchases (the First State is one of only a handful of states with no sales tax).
You'll also have more disposable income to spend on the grandkids, since property taxes are so low. The median annual property tax rate in Delaware is the seventh-lowest rate in the nation. Plus, some Delaware seniors qualify for a school property tax credit of up to $400 (you might have to live in the state for 10 years to get it, though).
The only potential downside — and it really isn't that bad — are middle-of-the-road income taxes if you have an above-average income. Overall, though, the income tax rates are comparatively reasonable, and residents age 60 and older can exclude up to $12,500 of pension and other retirement income (including dividends and interest, capital gains, IRA and 401(k) distributions, etc.).
For more information, see the Delaware State Tax Guide for Retirees.
District of Columbia
- Our Ranking: Most tax-friendly.
- State Income Tax Range: 4% (on taxable income up to $10,000) — 8.95% (on taxable income over $1 million). Beginning in 2022, the highest rate will be 10.75% on taxable income over $1 million.
- Average Combined State and Local Sales Tax Rate: 6%.
- Median Property Tax Rate: $564 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
From a tax standpoint, Washington, D.C., is a good place to retire (if you can stand all the political talk, that is). This is especially true for middle- and lower-income retirees. Although the District exempts Social Security income, most other forms of retirement income are taxed by the city. But many senior homeowners can get a substantial income tax credit based on the property taxes they pay.
And speaking of property taxes, the median property tax rate in D.C. are the eighth-lowest in the country. The city also offers property tax breaks designed just for seniors. Sales taxes in the Nation's Capital are modest, too.
The District of Columbia does impose an estate tax, though.
For more information, see the District of Columbia Tax Guide for Retirees.
Florida
- Our Ranking: Tax-friendly.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 7.01%.
- Median Property Tax Rate: $830 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Sunshine State is the quintessential “retirement state.” There’s no getting around it’s very popular with retirees, not just because of its forgiving climate but also because it has no state income tax. Sales taxes, though, can go as high as 8.5%, depending on where you live. The average combined state and local sales tax rate is 7.01%, which is about average.
Property taxes are reasonable in Florida, and residents ages 65 and older who meet certain income, property-value and length-of-ownership restrictions can also receive an extra homestead exemption. Any widow or widower who is a Florida resident may claim an additional $500 exemption as well.
For more information, see the Florida State Tax Guide for Retirees.
Georgia
- Our Ranking: Tax-friendly.
- State Income Tax Range: 1% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately) — 5.75% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately).
- Average Combined State and Local Sales Tax Rate: 7.33%.
- Median Property Tax Rate: $875 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Ever wonder why so many retirees have Georgia on their minds? The Peach State's low-tax climate may have something to do with it. Social Security income is exempt from state taxes, and so is up to $65,000 of most types of retirement income for those age 65 or older ($130,000 per couple). (For those age 62 to 64, the maximum exemption is $35,000.) Retirement income includes pensions and annuities, interest, dividends, net income from rental property, capital gains, royalties, and the first $4,000 of earned income, such as wages.
The statewide sales tax is 4%, but jurisdictions can add up to 4.9% of their own taxes. The average combined state and local sales tax rate is 7.33%, which is pretty average. The statewide median property tax rate in Georgia is middle-of-the-road, too.
For more information, see the Georgia State Guide for Taxes on Retirees.
Hawaii
- Our Ranking: Most tax-friendly.
- State Income Tax Range: 1.4% (on taxable income up to $4,800 for married couples filing jointly; on up to $2,400 for married couples filing separately and individual filers) — 11% (on taxable income over $400,000 for married couples filing jointly and surviving spouses; on over $200,000 for married couples filing separately and individual filers).
- Average Combined State and Local Sales Tax Rate: 4.44%.
- Median Property Tax Rate: $280 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
The Aloha State is known for its high cost of living, but it can be a tax paradise for retirees. It exempts Social Security benefits as well as most pension income from state income taxes. But if you have other sources of income, Hawaii will tax that income at rates up to 11%. That’s a lot of pineapples.
The property tax situation is unusual: The statewide median tax rate is the lowest in the country, and seniors can also get big-dollar exemptions from property taxes (these vary by county). But keep in mind that Hawaiian property values are sky-high.
Sales taxes are low in Hawaii, too. The average combined state and local rate is only 4.44%, which is the seventh-lowest in the U.S. (but purchases of groceries and clothing are taxed).
For more information, see the Hawaii State Guide for Taxes on Retirees.
Idaho
- Our Ranking: Tax-friendly.
- State Income Tax Range: 1% (on taxable income up to $3,176 for married joint filers and up to $1,588 for individual filers) — 6.5% (on taxable income of $15,878 or more for married joint filers and $7,939 or more for individual filers).
- Average Combined State and Local Sales Tax Rate: 6.02%.
- Median Property Tax Rate: $633 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
At first blush, the Gem State might not look like a tax-friendly state for retirees. Idaho taxes are no small potatoes: the state taxes all income, except Social Security and Railroad Retirement benefits, and its top tax rate of 6.5% kicks in at a relatively low level. While there is a generous retirement-benefits deduction, it's only available to retirees with qualifying public pensions.
But, if you dig a little deeper, retirees will see some good news on taxes. Sales taxes aren't too bad…and since groceries are taxable, the state offers a tax credit of $100 per person to offset these — and raises it to $120 if you're over 65. The state's median property tax rate is well below average, too. Plus, Idaho doesn't have an estate tax or inheritance tax.
For more information, see the Idaho State Tax Guide for Retirees.
Illinois
- Our Ranking: Least tax-friendly.
- State Income Tax Range: Flat 4.95%.
- Average Combined State and Local Sales Tax Rate: 8.83%.
- Median Property Tax Rate: $2,165 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
There is some good tax news for retirees in Illinois: Social Security benefits and income from most retirement plans are exempt. Plus, the state's 4.95% flat income tax rate is relatively low.
Now for the bad news from the Land of Lincoln: Property taxes hit retirees hard in Illinois. The statewide median property tax rate in Illinois is the second-highest in the nation. Fortunately, there is some relief for seniors in the form of a homestead exemption of up to $5,000 ($8,000 in Cook County), the ability to "freeze" a home's assessed value (must have income of $65,000 or less), and a tax deferral program.
Sales tax rates are high in Illinois, too. The state has the seventh-highest average combined state and local sales tax rate at 8.83%. In some locations, the rate can be as high as 11%! Illinois also has an estate tax, which can be bad news for your heirs.
For more information, see the Illinois State Tax Guide for Retirees.
Indiana
- Our Ranking: Not tax-friendly.
- State Income Tax Range: Flat 3.23%.
- Average Combined State and Local Sales Tax Rate: 7%.
- Median Property Tax Rate: $810 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
High state income taxes on retirees are the driving force behind Indiana's poor tax rating. While the Hoosier State exempts Social Security benefits and offers limited exemptions for military pensions and federal civil-service pensions, IRAs, 401(k) plans and private pensions are fully taxable. Keep in mind, too, that counties have the authority to levy their own income taxes on top of the state's flat tax.
The state's sales and property taxes don't help the cause, either. They're both middle-of-the-road when compared to other states. Not bad, but not enough to counter the state's high income tax rates.
For more information, see the Indiana State Tax Guide for Retirees.
Iowa
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 0.33% (on up to $1,676 of taxable income) — 8.53% (on taxable income over $75,420). (For 2022, 0.33% on up to $1,743 of taxable income and 8.53% on taxable income over $78,435.)
- Average Combined State and Local Sales Tax Rate: 6.94%.
- Median Property Tax Rate: $1,529 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Inheritance tax.
Property taxes in Iowa are no Field of Dreams: they’re as high as the corn. That's the main reason why the Hawkeye State gets a poor tax rating for retirees. The median property tax rate in Iowa is the 11th-highest in the nation. That certainly doesn't help homeowners in Iowa.
Income taxes are on the high end in Iowa, too. That's especially so for retirees with an above-average income. Plus, over 200 school districts and Appanoose County add their own income taxes on top of the state-level tax. (Beginning in 2023, the lowest Iowa personal income tax rate will be 4.4%, while the highest rate will be 6.5%.)
Iowa sales taxes are about average. There's also an inheritance tax in Iowa, which your heirs might have to pay. (Note that Iowa's inheritance tax is being phased-out and will be completely eliminated in 2025.)
For more information, see the Iowa State Tax Guide for Retirees.
Kansas
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 3.1% (on taxable income from $2,501 to $15,000 for single filers and from $5,001 to $30,000 for joint filers) — 5.7% (on more than $30,000 of taxable income for single filers and more than $60,000 for joint filers).
- Average Combined State and Local Sales Tax Rate: 8.7%.
- Median Property Tax Rate: $1,369 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
While there's no place like home, maybe Dorothy should think about returning to Oz when she retires to avoid Kansas' high taxes. It’s all there in black and white: Distributions from private retirement plans (including IRAs and 401(k) plans) and out-of-state public pensions are fully taxed. Kansas also taxes Social Security benefits received by residents with a federal adjusted gross income of $75,000 or more. Military, federal government and in-state public pensions are exempt from state income taxes, though.
Shopping in Kansas can be expensive, too. The Sunflower State's average combined state and local sales tax rate is the ninth-highest in the U.S. at 8.7%.
Property taxes are above the national average as well, though some breaks are available for seniors.
For more information, see the Kansas State Tax Guide for Retirees.
Kentucky
- Our Ranking: Tax-friendly.
- State Income Tax Range: Flat 5%.
- Average Combined State and Local Sales Tax Rate: 6%.
- Median Property Tax Rate: $829 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Inheritance tax.
The Bluegrass State isn’t horsin’ around: It exempts Social Security benefits from state income taxes, plus up to $31,110 per person of a wide variety of retirement income, including public and private pensions and annuities. A modest 6% sales tax is imposed at the state level, and localities can't add to it. Kentucky's median property tax rate is below the national average, too.
What's not to like? Kentucky's inheritance tax.
For more information, see the Kentucky State Tax Guide for Retirees.
Louisiana
- Our Ranking: Tax-friendly.
- State Income Tax Range: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers) — 6% (on more than $50,000 of taxable income; $100,000 for joint filers).
- Average Combined State and Local Sales Tax Rate: 9.55%.
- Median Property Tax Rate: $534 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Pelican State offers a bayou full of tax breaks to retirees who won’t need to sing the blues. Social Security benefits aren't taxed. Military, federal government, and state and local government pensions are exempt from state income taxes, too. Plus, up to $6,000 per person of private pension and annuity income are exempt from income taxes. And what income still gets taxed faces fairly low rates (starting in 2022, the lowest rate will be 1.85% and the highest rate will be 4.25%).
Property taxes are near the bottom for the U.S. That's some good news. But retirees must deal with the country's highest combined state and local sales tax rates on everything they buy, potentially including groceries, which are taxable in some localities.
For more information, see the Louisiana State Tax Guide for Retirees.
Maine
- Our Ranking: Not tax-friendly.
- State Income Tax Range: 5.8% (on taxable income less than $22,450 for single filers; less than $44,950 for joint filers) — 7.15% (on taxable income of $53,150 or more for single filers; $106,350 for joint filers).
- Average Combined State and Local Sales Tax Rate: 5.5%.
- Median Property Tax Rate: $1,295 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
When it comes to taxes, retirees get more bad news than good news in Maine. Let's start with property taxes that claw at your wallet: Maine’s median annual tax rate per $100,000 of home value is more than $200 above the national average. Ayuh.
The Pine Tree State, like the majority of states, exempts Social Security benefits from state income taxes. Plus, up to $10,000 per person of eligible pension income can be deducted. However, income above that threshold faces stiff income taxes.
Maine is one of a few states that do not allow cities and towns to impose their own local sales tax — only the state sales tax of 5.5% is due. That's good news. But Maine also has an estate tax. That's more bad news.
For more information, see the Maine State Tax Guide for Retirees.
Maryland
- Our Ranking: Mixed.
- State Income Tax Range: 2% (on less than $1,000 of taxable income) — 5.75% (on more than $250,000 of taxable income for single filers; more than $300,000 for joint filers).
- Average Combined State and Local Sales Tax Rate: 6%.
- Median Property Tax Rate: $1,057 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Both.
There’s plenty to crab about regarding Maryland’s income taxes: They can be high for retirees. It's true the state doesn't tax Social Security benefits. If you're 65 or older, you may qualify for a healthy exclusion on distributions from 401(k), 403(b) and 457 plans, along with income from public and private pensions. But here's the hitch: Any income outside those exclusions will be heavily taxed in the Free State. Plus, Maryland's 23 counties and Baltimore City levy their own income taxes.
The statewide median property tax rate is right around the national average, which helps. Sales taxes in Maryland are on the low end, too. (And there are no local sales taxes). These help balance out the state's high income taxes.
For more information, see the Maryland State Tax Guide for Retirees.
Massachusetts
- Our Ranking: Not tax-friendly.
- State Income Tax Range: Flat 5%.
- Average Combined State and Local Sales Tax Rate: 6.25%.
- Median Property Tax Rate: $1,170 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
The Bay State offers a couple of breaks for retirees, but it's not a very tax-friendly place for seniors overall. When it comes to income taxes, Massachusetts doesn't tax Social Security and most government employee pension income. But all other retirement income is taxed at a flat rate of 5%. (Note: On November 8, 2022, Massachusetts voters will decide whether to add an additional 4% tax on taxable income over $1 million starting in 2023.)
Property taxes run high with an above-average statewide median tax rate, although there is a refundable tax credit available to eligible homeowners 65 or older. Massachusetts also has its own estate tax.
On the plus side, sales taxes in Massachusetts are on the low end. The state rate is 6.25%, but there are no local taxes to tack on.
For more information, see the Massachusetts State Tax Guide for Retirees.
Michigan
- Our Ranking: Not tax-friendly.
- State Income Tax Range: Flat 4.25%.
- Average Combined State and Local Sales Tax Rate: 6%.
- Median Property Tax Rate: $1,448 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Great Lakes State tends to collect more state and local taxes from retirees than many other states, thanks in large part to above-average property taxes. Even though Michigan offers some property tax breaks for lower-income seniors (and others), the state's median property tax rate is still the 14th-highest in the nation.
It's a bit of a mixed bag when it comes to income taxes for retirees. If you were born before 1946, the tax breaks for retirement income are pretty good. However, if you were born later, the state isn't quite as generous.
On the positive side, sales taxes in Michigan are below average. The state rate is 6%, which isn't too bad. Plus, there are no additional local sales taxes to worry about.
For more information, see the Michigan State Tax Guide for Retirees.
Minnesota
- Our Ranking: Not tax-friendly.
- State Income Tax Range: 5.35% (on less than $27,230 of taxable income for single filers and on less than $39,810 for joint filers) — 9.85% (on more than $166,040 of taxable income for single filers and on more than $276,200 for joint filers).
- Average Combined State and Local Sales Tax Rate: 7.47%.
- Median Property Tax Rate: $1,082 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
The North Star State offers cold comfort on the tax front to retirees. Social Security benefits are taxable to the same extent as they are on your federal return, though taxpayers with taxable Social Security benefits can deduct some of their payments if their income is below a certain amount. There is also a special income tax deduction for certain senior citizens. But pensions are taxable, unless they're from the military. Distributions from IRAs and 401(k) plans are taxed, too.
Property tax rates are slightly above average in Minnesota. But the state's Senior Citizen Property Tax Deferral Program allows certain people age 65 or older to defer a portion of the property tax on their home.
Sales tax rates in Minnesota are above average, too. Plus, the state imposes an estate tax.
For more information, see the Minnesota State Tax Guide for Retirees.
Mississippi
- Our Ranking: Tax-friendly.
- State Income Tax Range: 3% (on taxable income from $3,001 to $5,000) — 5% (on taxable income over $10,000).
- Average Combined State and Local Sales Tax Rate: 7.07%.
- Median Property Tax Rate: $787 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The tea is sweet in the Magnolia State, and so is the income tax environment for retirees. Mississippi not only exempts Social Security benefits from state income tax, but it also excludes withdrawals from IRAs and 401(k) plans, income from public and private pensions, and other types of qualified retirement income.
Mississippi sports a fairly hefty state sales tax rate of 7.07% (22nd in the nation), and Mississippi is one of a minority of states that charges sales tax on groceries. But localities add very little, if anything, on top of the state's rate.
Property taxes on residential real estate aren't too bad, either. Mississippi's median annual property tax rate is well below the U.S. average.
For more information, see the Mississippi State Tax Guide for Retirees.
Missouri
- Our Ranking: Mixed.
- State Income Tax Range: 1.5% (on taxable income from $108 to $1,088) — 5.4% (on more than $8,704 of taxable income).
- Average Combined State and Local Sales Tax Rate: 8.25%.
- Median Property Tax Rate: $930 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
It's easy to see why the Show-Me State gets a "mixed" tax rating for retirees. For the three major taxes — income, sales and property taxes — state and local levies are neither very high nor very low. For income taxes, Missouri doesn't tax Social Security benefits for many taxpayers. Taxpayers may also qualify for exemptions on public and private pensions, subject to income limits. But note that if you do have taxable income, the top rate kicks in quickly: 5.4% on income over $8,704 (for 2021).
Missouri's state sales tax rate is rather low. However, local sales tax rates can be high. So, overall, sales tax levies in Missouri are above average.
On the other hand, the median property tax rate in Missouri is slightly below average. Plus, some seniors may qualify for a property-tax credit.
For more information, see the Missouri State Tax Guide for Retirees.
Montana
- Our Ranking: Tax-friendly.
- State Income Tax Range: 1% (on up to $3,100 of taxable income) — 6.9% (on taxable income over $18,700).
- Average Combined State and Local Sales Tax Rate: None.
- Median Property Tax Rate: $831 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Sales taxes are at the root of Montana's tax-friendly ranking. The Treasure State is one of five states that don't impose a general state sales tax. That's the good news.
The bad news is that Montana taxes virtually all forms of retirement income, including Social Security. The state allows a pension- and annuity-income exemption, but this tax break is subject to certain income limitations. So, for wealthier retirees, the state's income tax hits hard. (Note: Beginning in 2024, the pension and annuity exemption is repealed, but taxpayers age 65 and older will be able to deduct up to $5,500 of income. In addition, the top income tax rate drops in 2022 to 6.75% on taxable income over $17,400, and the tax rate brackets are reorganized starting in 2024.)
On the property-tax front, rates are modest, on average, and any homeowner or renter 62 or older with total household income of less than $45,000 can apply for a refundable income tax credit worth up to $1,000.
For more information, see the Montana State Tax Guide for Retirees.
Nebraska
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 2.46% (on up to $3,290 of taxable income for single filers and $6,570 for married couples filing jointly) — 6.84% (on taxable income over $31,750 for single filers and $63,500 for married couples filing jointly).
- Average Combined State and Local Sales Tax Rate: 6.94%.
- Median Property Tax Rate: $831 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Inheritance tax.
Nebraska is one of the least tax-friendly states in the nation for retirees, primarily because of steep income and property taxes. The Cornhusker State taxes most Social Security benefits received by seniors with income over a threshold amount (although taxes on seniors with income over the threshold amount will be lowered over the next few years). Most other retirement income, including public and private pensions, IRA withdrawals and 401(k) funds are taxed, too. Plus, the top income tax rate kicks in pretty quickly.
Nebraska's median property tax rate is also the ninth-highest in the country. Seniors can get an exemption for up to $40,000 of assessed value, but there are income thresholds for this tax break, too.
What helps: Moderate sales tax rates. But they're not enough to offer much of a counter balance to the state's lofty income and property taxes.
For more information, see the Nebraska State Tax Guide for Retirees.
Nevada
- Our Ranking: Most tax-friendly.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 8.23%.
- Median Property Tax Rate: $533 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Retired in Nevada? You hit it big! The Silver State offers retirees a jackpot of tax savings. There is no state income tax, so you can cash in your retirement plans and collect your Social Security checks without worrying about a big state tax bill. There are no estate or inheritance taxes in Nevada, either.
Property taxes are considerably below the national average. That's good, as the state offers no property tax breaks for seniors.
Sales tax is one area where Nevada could do better. The state imposes a 6.85% tax, and counties may tack on up to 1.53% more. As a result, the average combined state and local sales tax rate is 8.23% (that's the 13th-highest combined rate in the country).
For more information, see the Nevada State Tax Guide for Retirees.
New Hampshire
- Our Ranking: Not tax-friendly.
- State Income Tax Range: None. But there's a 5% tax on dividends and interest in excess of $2,400 for individuals ($4,800 for joint filers).
- Average Combined State and Local Sales Tax Rate: None.
- Median Property Tax Rate: $2,050 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Residents of the Granite State pay no taxes on Social Security benefits, pensions or distributions from their retirement plans — because there's no general income tax. Though New Hampshire imposes a 5% tax on dividends and interest, the first $2,400 ($4,800 for joint filers) is exempt. There are also $1,200 personal exemptions available for residents 65 or older. (Note: The tax on dividends and interest is being phased out. The rate will be 4% for 2023, 3% for 2024, 2% for 2025, and 1% for 2026. The tax will then be repealed on January 1, 2027.)
There's no sales tax in New Hampshire, either. So, you can shop to your heart's content without having to pay any tax (and you’ll likely run into a lot of out-of-state shoppers looking to score without paying tax).
Here's the hitch: The median property tax rate in New Hampshire is the fourth-highest in the U.S. Some property tax relief is available for seniors, but the programs, run by towns and cities, are complex and not overly generous.
For more information, see the New Hampshire State Guide for Taxes on Retirees.
New Jersey
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 1.4% (on up to $20,000 of taxable income) — 10.75% (on taxable income over $1 million).
- Average Combined State and Local Sales Tax Rate: 6.6%.
- Median Property Tax Rate: $2,417 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Inheritance tax.
Year in and year out, the Garden State ranks as one of the least tax-friendly states for retirees and others. But New Jersey has made some efforts to reduce the income tax burden on retirees, with a very generous exemption for retirement income and a complete exemption for Social Security benefits. Sales taxes are below average, too.
It's not enough, though, to overcome New Jersey's crushing property taxes — the highest (on average) in the country, with residents facing a median property tax rate of $2,417 in taxes per $100,000 of assessed home value. It’s why we’ve seen retirement-age friends fleeing the state for more tax-friendly environs.
Plus, even though New Jersey recently eliminated its estate tax, the state still imposes an inheritance tax.
For more information, see the New Jersey State Tax Guide for Retirees.
New Mexico
- Our Ranking: Not tax-friendly.
- State Income Tax Range: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers) — 5.9% (on taxable income over $210,000 for single filers and over $315,000 for joint filers).
- Average Combined State and Local Sales Tax Rate: 7.84%.
- Median Property Tax Rate: $776 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Land of Enchantment is not a magical place for well-off retirees. Social Security benefits, retirement accounts and pensions are all taxable. The state does offer a retirement-income exemption of up to $8,000, but you must meet certain income restrictions to qualify. Starting in 2021, the top income tax rate also jumped from 4.9% to 5.9% (although far fewer people are now subject to the highest New Mexico rate).
New Mexico's sales tax has a broad reach, hitting most services in addition to goods. As a result, this tax tends to hit retirees fairly hard.
On the bright side, property taxes are on the low side, and there are property tax credit and deferral programs available to low-income seniors. Plus, if you live to be 100 years old, the state's income tax is waived.
For more information, see the New Mexico State Tax Guide for Retirees.
New York
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 4% (on up to $8,500 of taxable income for single filers and up to $17,150 for married couples filing jointly) — 10.9% (on taxable income over $25 million).
- Average Combined State and Local Sales Tax Rate: 8.52%.
- Median Property Tax Rate: $1,692 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
The Empire State's crushing tax burden carries over into retirement — especially when it comes to property taxes. New York's median property tax rate is tied for the 7th-highest in the U.S. There are some property tax breaks for seniors, though. For instance, local governments and public-school districts can reduce the assessed value of their home by 50% for qualifying seniors.
Sales taxes are high in New York, too. The state's average combined state and local tax rate is the 10th-highest in the nation.
When it comes to income taxes, New York's tax bite is less severe for ordinary retirees when compared to other states. Social Security benefits, federal and New York government pensions, and military retirement pay are exempt. However, anything over $20,000 from a private retirement plan (including pensions, IRAs and 401(k) plans) or out-of-state government plan is taxed. For ultra-wealthy retirees, New York income tax rates were always steep, but they're even higher now — starting in 2021, the highest rate jumps from 8.82% to 10.9%.
New York also has an estate tax with a special "cliff" feature that can result in a big tax bill when you die.
For more information, see the New York State Tax Guide for Retirees.
North Carolina
- Our Ranking: Mixed.
- State Income Tax Range: Flat 5.25% (the rate is decreased to 4.99% for 2022, and then gradually lowered to 3.99% for 2027 and thereafter).
- Average Combined State and Local Sales Tax Rate: 6.98%.
- Median Property Tax Rate: $773 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Tar Heel State, a favorite for retirees relocating from other states, doesn't tax Social Security benefits, but tax breaks for other common types of retirement income are scarce (although government pensions are exempt under certain circumstances). That's certainly a big problem for many North Carolina retirees who dread high income taxes.
But things do get better for seniors in the state. Sales taxes in North Carolina are close to the national average. But, while the state doesn't tax groceries, localities do.
Property taxes are on the low end, too. Plus, homeowners 65 and older can choose between two property-tax relief programs.
There are no estate or inheritance taxes in North Carolina, either.
For more information, see the North Carolina State Tax Guide for Retirees.
North Dakota
- Our Ranking: Mixed.
- State Income Tax Range: 1.1% (on up to $40,525 of taxable income for singles and up to $67,700 for married couples filing jointly) — 2.9% (on taxable income over $445,000).
- Average Combined State and Local Sales Tax Rate: 6.96%.
- Median Property Tax Rate: $986 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Peace Garden State could do better when it comes to keeping taxes low on retirees. Other than an exemption for military retirement pay, it offers no tax breaks for other common forms of retirement income, such as private or public pensions, 401(k) funds and IRA distributions. Fortunately, starting in 2021, Social Security benefits aren't taxed. Plus, the income tax rates are so low that most North Dakota retirees still don't get outrageous income tax bills even if they do have taxable income.
Sales taxes are right around the national average, while property taxes are a bit above. There are no estate or inheritance taxes to worry about, either. When it's all added up, the typical tax burden for a North Dakota retiree is pretty much in the middle when compared to all the other states.
For more information, see the North Dakota State Tax Guide for Retirees.
Ohio
- Our Ranking: Not tax-friendly.
- State Income Tax Range: 2.765% (on taxable income from $25,001 to $44,250) — 3.99% (on taxable income over $110,650).
- Average Combined State and Local Sales Tax Rate: 7.22%.
- Median Property Tax Rate: $1,478 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
As with many states, lower-income retirees in the Buckeye State don't pay much in income taxes. But that isn't always true with higher-income seniors. Ohio exempts Social Security benefits from state income taxes for everyone. However, the slate of tax credits for other types of retirement income don't apply if your base income exceeds $100,000. Localities and some school districts may levy their own income taxes, too.
Property taxes are well above average in Ohio as well. Residents 65 and older may be able to exempt some of their home's value from Ohio's steep property taxes. However, there's an income threshold for this property tax break, too.
Sales taxes in the state are relatively modest. That helps keep Ohio out of the "least tax-friendly" category. And there are no estate or inheritance taxes to worry about.
For more information, see the Ohio State Tax Guide for Retirees.
Oklahoma
- Our Ranking: Mixed.
- State Income Tax Range: 0.5% (on up to $1,000 of taxable income for single filers and up to $2,000 for married joint filers) — 5% (on taxable income over $7,200 for single filers and over $12,200 for married joint filers). Starting in 2022, the lowest rate will be 0.25% and the highest rate will be 4.75%.
- Average Combined State and Local Sales Tax Rate: 8.95%.
- Median Property Tax Rate: $869 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Oklahoma, O.K. Just O.K. See, there's good news and bad news for retirees living in the Sooner State. Oklahoma doesn't tax Social Security benefits. Residents can also exclude up to $10,000 per person ($20,000 per couple) of other types of retirement income. That's certainly helpful.
But Oklahoma has the 6th-highest combined state and local sales tax rates in the nation, at an average of 8.95%. Both groceries and clothing are subject to sales tax, too.
Oklahoma falls right in the middle when the median property tax rates for all 50 states are compared. Plus, elderly homeowners may qualify for a rebate or tax "freeze" if their income is below a certain amount.
For more information, see the Oklahoma State Tax Guide for Retirees.
Oregon
- Our Ranking: Mixed.
- State Income Tax Range: 4.75% (on up to $3,650 of taxable income for single filers and up to $7,300 for married couples filing jointly) — 9.9% (on taxable income over $125,000 for single filers and over $250,000 for married couples filing jointly).
- Average Combined State and Local Sales Tax Rate: None.
- Median Property Tax Rate: $903 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
Oregon doesn't tax Social Security benefits, which certainly helps retirees lower their income tax bill. But, in most cases, other retirement income is subject to tax — and Oregon's income tax rates can be as high as 9.9%. However, there is a retirement-income credit for seniors, but it comes with certain income restrictions.
One bright spot in Oregon's tax picture is its absence of a sales tax. You can buy anything in the state and never pay a penny in sales taxes.
When it comes to property taxes, Oregon's median property tax rate is a little below the national average. There's also a property tax deferral program for senior citizens, but income limits do apply.
For more information, see the Oregon State Tax Guide for Retirees.
Pennsylvania
- Our Ranking: Not tax-friendly.
- State Income Tax Range: Flat 3.07%.
- Average Combined State and Local Sales Tax Rate: 6.34%.
- Median Property Tax Rate: $1,499 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Inheritance tax.
Like neighboring New Jersey, Pennsylvania takes it very easy on Social Security benefits and other types of retirement income. Plus, the local income taxes generally don't affect retirees either, as they're levied on wages.
Also like New Jersey, property taxes in the Keystone State are on the high end (although they're not as bad in Pennsylvania as they are in New Jersey). The state's median property tax rate is the 12th-highest in the U.S. Although a property tax/rent rebate program is available, it comes with income limits.
Sales taxes are below average in Pennsylvania. That's certainly some good news for retirees. However, the state also has an inheritance tax that can gum up your estate planning.
For more information, see the Pennsylvania State Tax Guide for Retirees.
Rhode Island
- Our Ranking: Not tax-friendly.
- State Income Tax Range: 3.75% (on up to $65,250 of taxable income) — 5.99% (on taxable income over $148,350).
- Average Combined State and Local Sales Tax Rate: 7%.
- Median Property Tax Rate: $1,533 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
High-earners won't find the Ocean State amenable for retirement. On the income tax front, seniors pay tax on their Social Security benefits if their federal adjusted gross is too high. Wealthier retirees also miss out on a state income tax exemption for payouts from private, government, or military retirement plans.
The property tax news isn't any better. The statewide median property tax rate in Rhode Island is the 10th-highest in the U.S. Homeowners 65 and older who earn $30,000 or less can get a state tax credit, though. Local governments in Rhode Island can also offer a property tax exemption or similar property tax break for senior citizens.
Retirees will also want to know that sales taxes in the state are average and Rhode Island has an estate tax (it's also one of only three states that tax estates worth less than $2 million).
For more information, see the Rhode Island State Tax Guide for Retirees.
South Carolina
- Our Ranking: Most tax-friendly.
- State Income Tax Range: Low: 3% (on taxable income from $3,070 to $6,150) — 7% (on taxable income over $15,400).
- Average Combined State and Local Sales Tax Rate: 7.47%.
- Median Property Tax Rate: $545 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Palmetto State extends some real Southern hospitality to retirees by offering a charming collection of income tax breaks. To start, Social Security benefits are completely exempt. In addition, taxpayers age 65 or older can exclude up to $10,000 of retirement income. Seniors can also deduct $15,000 from other taxable income ($30,000 for joint filers).
Low property tax rates in South Carolina help retirees, too, as many transplants from New Jersey and New York quickly realize. The statewide median property tax rate is the sixth-lowest amount in the country. Plus, seniors can also claim a homestead exemption for the first $50,000 of their property's fair market value.
The bad news: Sales taxes are on the high end in South Carolina, with an average combined state and local rate of 7.47%.
For more information, see the South Carolina State Tax Guide for Retirees.
South Dakota
- Our Ranking: Mixed.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 6.4%.
- Median Property Tax Rate: $1,219 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Mount Rushmore State offers both good tax news and bad tax news for retirees. First some good news: South Dakota doesn't impose an income tax, so Social Security benefits and other forms of retirement income get a free ride.
For some bad news, take a look at the state's property tax rates, which are on the high side. Property tax relief programs are also limited to low-income residents.
The news is split between good and bad when it comes to sales taxes in South Dakota. On the one hand, rates are below average. However, the sales taxes have a broad reach here and include taxes on both groceries and clothing.
For more information, see the South Dakota State Tax Guide for Retirees.
Tennessee
- Our Ranking: Most tax-friendly.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 9.547%.
- Median Property Tax Rate: $636 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Retirees in the Volunteer State will be singing "Rocky Top" all the way to the bank, thanks to a low overall tax burden in the state. Tennessee has no income tax starting in 2021, though the state did levy a 1% tax on stock dividends and interest income from bonds and other investments in 2020 (that tax was phased out).
Property taxes are well below average, too. The state also offers some property tax relief programs for income-qualified senior citizens.
However, you’ll be singing the blues at the cash register. Be prepared to fork over some substantial sales taxes in Tennessee, because it has the second-highest combined state and local sales tax rate in the nation, at an average of 9.547%.
For more information, see the Tennessee State Tax Guide for Retirees.
Texas
- Our Ranking: Least tax-friendly.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 8.19%.
- Median Property Tax Rate: $1,692 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
How does a state with no income tax at all end up on the "least tax-friendly" list? It starts by having the seventh-highest median property tax rate in the country. The Lone Star State does offer seniors some breaks from the heavy property tax burden, with an additional homestead exemption, a valuation freeze program, and the ability to defer property taxes. However, these benefits are not enough to make Texas a tax-friendly state for retirees.
Sales taxes in Texas are also high. The average combined state and local tax rate in the state is 8.19%, which is the 14th-highest combined rate in the U.S.
For more information, see the Texas State Tax Guide for Retirees.
Utah
- Our Ranking: Mixed.
- State Income Tax Range: Flat 4.95%.
- Average Combined State and Local Sales Tax Rate: 7.19%.
- Median Property Tax Rate: $575 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Beehive State's income tax system is rough on retirees — especially wealthier ones. Utah is one of only a handful of states that taxes Social Security benefits. Most other retirement income is exposed to the state's flat 4.95% income tax, too. Utah provides a small retirement-income tax credit that may help offset the tax on Social Security, but it's only available for certain income-eligible seniors.
Sales taxes in Utah are not quite as steep — but they're certainly not what you'd call low. The state's average combined state and local sales tax rate is 7.19%, which is above average.
Retirees do get some relief when it comes to property taxes in the state. The median property tax rate in Utah is tied for the 10th-lowest in the nation. Property tax breaks are also available for seniors with income below certain levels.
For more information, see the Utah State Tax Guide for Retirees.
Vermont
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 3.35% (on up to $40,350 of taxable income for singles and up to $67,450 for joint filers) — 8.75% (on taxable income over for $204,000 for singles and up to $248,350 for joint filers).
- Average Combined State and Local Sales Tax Rate: 6.24%.
- Median Property Tax Rate: $1,861 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
You'll need plenty of firewood to make it through Vermont winters, and plenty of money for the tax bill, too. The Green Mountain State has a steep top income tax rate, and most retirement income is taxed. The state also taxes all or part of Social Security benefits for residents with federal adjusted gross income a certain amount.
Vermont's median property tax rate is the fifth-highest in the U.S. Homeowners age 65 and older may qualify for a tax credit worth up to $8,000, but the credit is only available if their household income doesn't exceed a certain level.
Vermont also taxes estates that exceed $4.25 million in value ($5 million starting in 2021).
At least Vermont's sales tax is on the low end. The average combined state and local tax rate is only 6.24%, and food for home consumption and clothing are exempt, limiting the impact of this tax (remember, no-sales-tax New Hampshire is next door).
For more information, see the Vermont State Tax Guide for Retirees.
Virginia
- Our Ranking: Tax-friendly.
- State Income Tax Range: 2% (on up to $3,000 of taxable income) — 5.75% (on taxable income over $17,000).
- Average Combined State and Local Sales Tax Rate: 5.75%.
- Median Property Tax Rate: $804 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
For retirees, the Old Dominion offers a few tax breaks here and a few tax breaks there to create a friendly overall tax environment. For state income taxes, Virginia doesn't tax Social Security benefits, and residents 65 and older can deduct up to $12,000 per person of other income, subject to income-eligibility limits.
Another break comes in the form of low sales tax rates. Virginia's average combined state and local rate of 5.75% is the 11th-lowest in the nation. Clothing and groceries (reduced rate) are taxable, though.
Property taxes are below average, too. Local governments can provide additional tax breaks for seniors as well.
For more information, see the Virginia State Tax Guide for Retirees.
Washington
- Our Ranking: Mixed.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 9.29%.
- Median Property Tax Rate: $929 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: Estate tax.
The Evergreen State is one of seven states with no broad-based personal income tax. Therefore, retirees don't have to worry about paying taxes on their pensions, Social Security benefits or other retirement income, period. [Note that, beginning in 2022, Washington will impose a 7% tax on the sale or exchange of certain long-term capital assets if the profits exceed $250,000 annually. However, the constitutionality of the Washington capital gains tax is being challenged in court.]
However, sales taxes in Washington are extremely high. At 9.29%, the state's combined state and local sales tax rate is the 4th-highest in the nation.
Property taxes in Washington are more reasonable, though. The median property tax rate is very close to the national average. The state also offers two property tax relief programs just for seniors.
For more information, see the Washington State Tax Guide for Retirees.
West Virginia
- Our Ranking: Mixed.
- State Income Tax Range: 3% (on up to $10,000 of taxable income) — 6.5% (on taxable income of $60,000 or more).
- Average Combined State and Local Sales Tax Rate: 6.51%.
- Median Property Tax Rate: $571 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
Not quite heaven, but almost: Through 2021, 65% of Social Security benefits taxed by the federal government are excluded from state taxable income for retirees with income under a certain amount. But the tax situation in the Mountain State is evolving, with the tax on Social Security income in the process of being phased out for low- and middle-income seniors. By 2022, all Social Security benefits will be tax-free for retirees with income under the threshold amount. With regard to other retirement income, there are some exemptions for government pensions and a limited general income deduction for seniors.
Sales taxes are reasonable in West Virginia. They're pretty close to average when compared to the rest of the country.
Property taxes are notably low. West Virginia's median property tax rate is the ninth-lowest in the U.S. The state also offers a few property tax breaks for qualifying seniors.
For more information, see the West Virginia State Tax Guide for Retirees.
Wisconsin
- Our Ranking: Least tax-friendly.
- State Income Tax Range: 3.54% (on up to $12,120 of taxable income for singles or up to $16,160 for married couples) — 7.65% (on taxable income over $266,930 for singles or over $355,910 for married couples).
- Average Combined State and Local Sales Tax Rate: 5.43%.
- Median Property Tax Rate: $1,684 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Badger State exempts Social Security benefits from state taxes, but income from pensions and annuities, along with distributions from IRAs and 401(k) plans, are generally taxable. However, retirees who are 65 and older can subtract up to $5,000 of retirement income (including distributions from IRAs) from Wisconsin taxable income if their federal adjusted gross income is less than $15,000 ($30,000 for a married couple filing jointly).
Property taxes are the eighth-highest in the U.S. Plus, there are limited property tax breaks for retirees.
There are some bright spots for retirees. For example, sales taxes are actually low in Wisconsin. It has the ninth-lowest average combined state and local tax rate in the nation. There are no estate or inheritance taxes, either.
For more information, see the Wisconsin State Tax Guide for Retirees.
Wyoming
- Our Ranking: Most tax-friendly.
- State Income Tax Range: None.
- Average Combined State and Local Sales Tax Rate: 5.39%.
- Median Property Tax Rate: $575 per $100,000 of assessed home value.
- Estate Tax or Inheritance Tax: None.
The Equality State is tax-friendly to all residents, including retirees. Thanks to abundant revenues that the state collects from oil and mineral rights, Wyoming retirees shoulder one of the lowest overall state and local tax burdens in the U.S. To start, there are no income, estate or inheritance taxes. But that's not the only good news.
Sales taxes are low in Wyoming, too. The state imposes the eighth-lowest average combined state and local sales tax rate in the U.S.
You won't pay high property taxes to own a home on the range, either. The statewide median property tax rate is tied for the 10th-lowest in the U.S. Seniors may also qualify for the deferral of property tax payments.
For more information, see the Wyoming State Tax Guide for Retirees.
About Our Methodology
Our tax content include data and state tax-policy details from a wide range of sources. To create our rankings, we created a metric to compare the tax burden in all 50 states and the District of Columbia.
Data sources:
Income tax
Our income tax information comes from each state's tax agency. Income tax forms and instructions were also used. See more about how we calculated the income tax for our hypothetical couples below under "Ranking method."
Property Tax
The median property tax rate is based on the median property taxes paid and the median home value in each state for 2019 (the most recent year available). The data comes from the U.S. Census Bureau.
Sales tax
State sales tax rates are from each state's tax agency. We also cite the Tax Foundation's figure for average combined sales tax, which is a population-weighted average of state and local sales taxes. In states that let local governments add sales taxes, this gives an estimate of what most people in a given state actually pay, as those rates can vary widely.
Inheritance & gift taxes:
Data from each state tax agency was used for estate and inheritance tax information.
Ranking method
The "tax-friendliness" of a state depends on the sum of income, sales and property taxes paid by our two hypothetical retired couples.
To determine income taxes due, we prepared returns for both couples. The first couple had $15,000 of earned income (wages), $20,500 of Social Security benefits, $4,500 of 401(k) plan distributions, $4,000 of traditional IRA withdrawals, $3,000 of Roth IRA withdrawals, $200 of taxable interest, $1,000 of dividend income, and $1,800 of long-term capital gains for a total income of $50,000 for the year. They also had $10,000 of medical expenses, paid $2,500 in real estate taxes, paid $1,200 in mortgage interest, and donated $1,900 (cash and property) to charity.
The second couple had $37,500 of Social Security benefits, $26,100 of 401(k) plan distributions, $18,200 of private pension money, $4,000 of traditional IRA withdrawals, $2,000 of Roth IRA withdrawals, $2,000 of tax-exempt municipal bond interest (from the state of residence), $2,000 of taxable interest, $4,000 of dividend income, and $4,200 of long-term capital gains for a total income of $100,000 for the year. They also had $10,000 of medical expenses, paid $3,200 in real estate taxes, paid $1,500 in mortgage interest, and donated $4,300 (cash and property) to charity.
Since some states have local income taxes, we domiciled both our couples in each state's capital, from Juneau to Cheyenne. We calculated their 2019 income tax returns using software from eFile.com.
How much they paid in sales taxes was calculated using the IRS' Sales Tax Calculator, which is localized to zip code. To determine those, we used Zillow to determine zip codes with housing inventory close to our sample assessed value.
How much each hypothetical couple paid (and deducted on their income tax return, if allowed) in property taxes was calculated by assuming a residence with a $250,000 assessed value for the first couple and a $350,000 assessed value for the second couple. We then applied each state's median property tax rate to that appropriate amount.
