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All Contents © 2019The Kiplinger Washington Editors
By Sandra Block, Senior Editor , and David Muhlbaum, Senior Online Editor and Rocky Mengle, Tax Editor | January 18, 2019
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Retirees relocate for lots of different reasons, from the weather to proximity to grandchildren. Moving from a pricey part of the country to one with low housing prices could also lower your expenses and make your retirement savings last longer. But as you consider the cost of living in potential retirement destinations, don’t overlook the impact of state taxes on your bottom line.
Where does your 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 at the end of this story.
Our ranking: Tax-friendly
State income tax: 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 state and local sales taxes: 9.15%
Estate tax/inheritance tax: No/No
Go to Alabama’s full state tax profile
The Yellowhammer State doesn’t bring it down on retirees. Most pensions and Social Security are exempt from state income taxes. Homeowners 65 and older don’t pay state property taxes, and can qualify for breaks on county and local property taxes as well. A catch: Sales taxes are high, and even apply to food.
Some counties and cities charge an “municipal occupational tax” of 0.5%-2% on income; the average levy across the state is 0.5%, according to the Tax Foundation.
Our ranking: Most tax-friendly
State income tax: None
Average sales tax (local only): 1.43%
Go to Alaska’s full state tax profile
One of Kiplinger’s top ten most tax-friendly states for retirees, the Last Frontier is a true tax haven for retirees. Alaskans pay no state income tax or state sales tax. In addition, the state sends all permanent residents (who have lived there for at least one year) an annual dividend check from the state’s oil wealth savings account. 2018’s payment was $1,600.
While real estate is taxable in some areas of Alaska, homeowners 65 and older, or surviving spouses 60 and older, are exempt from municipal taxes on the first $150,000 of the assessed value of their property.
Our ranking: Mixed tax picture
State income tax: 2.59% (on up to $20,690 of taxable income for married joint filers and up to $10,346 for all others) — 4.54% (on more than $310,317 of taxable income for married joint filers and more than $155,159 for all others)
Average state and local sales taxes: 8.33%
Go to Arizona’s full state tax profile
The Grand Canyon State is a major retirement destination, with plenty of sunshine and a low personal income tax rate that tops out at 4.54%. Social Security benefits are exempt, as is up to $2,500 of some retirement income. The shadow on this picture? Stiff sales taxes, which in many places are also levied on groceries.
Our ranking: Not tax-friendly
State income tax: 0.9% (on up to $4,499 of taxable income) — 6.9% (on more than $79,301)
Average state and local sales taxes: 9.42%
Go to Arkansas’ full state tax profile
The Natural State exempts Social Security benefits and up to $6,000 of retirement income from its state income tax. But note that income that exceeds these breaks runs into pretty steep taxes. And although Arkansas’s real estate taxes are among the lowest in the nation, its sales taxes—which are levied on food as well—are near the top.
A plus for veterans: All military pension income is tax-exempt.
State income tax: 1% (on up to $16,446 of taxable income for married joint filers and up to $8,223 for those filing individually) — 13.3% (on more than $1,145,960 for married joint filers and $1 million for those filing individually)
Average state and local sales taxes: 8.55%
Go to California’s full state tax profile
California has the highest tax rate in the country, at 13.3% (for millionaires). And while it doesn’t tax Social Security income or Railroad Retirement benefits, all other retirement income is fair game. Sales taxes are high. But, there’s a significant bright spot: If you’re over 65, you get to claim an extra $118 exemption that comes right off your tax bill: It reduces what you owe directly, the same way as a federal tax credit would.
State income tax: Flat 4.63%
Average state and local sales taxes: 7.52%
Go to Colorado’s full state tax profile
If you want to retire early, the Centennial State could be your place. Taxpayers 55 and older get a generous retirement-income exclusion from state taxes, and the deal gets better when they reach 65.
But sales taxes in Colorado (which have a local component) are on the high side, and can reach the double digits in some resort communities. Seniors may qualify for a homestead exemption of up to 50% of the first $200,000 of property value.
Our ranking: Least tax-friendly
State income tax: 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)
Sales tax: 6.35%
Estate tax/inheritance tax: Yes/No
Go to Connecticut’s full state tax profile
One of Kiplinger’s top ten least tax-friendly states for retirees, the Constitution State is a tax nightmare for many retirees. Connecticut has the fourth-highest property taxes in the U.S. and relief for seniors on those taxes is fairly scanty. Residents in some high-cost areas will bump up against the new $10,000 cap on federal deductions for state and local taxes.
Though Connecticut does not tax military pensions, it has no exemptions or tax credits for other types of pensions or other retirement income. And it taxes a portion of Social Security benefits for taxpayers above certain income thresholds. Cars, too, are taxed steeply.
Estates valued over $3.6 million are subject to estate tax. The exemption will rise to $5.1 million in 2020. Rates range from 7.2% to 12%.
State income tax: 2.2% (on taxable income from $2,001 to $5,000) — 6.6% (on taxable income above $60,000).
Sales tax: None
Go to Delaware’s full state tax profile
In the First State, Social Security benefits are exempt, and taxpayers over 60 can exclude $12,500 of investment and qualified pension income from state income taxes, and income above that faces only modest tax rates. Homeowners 65 and older may qualify for a credit equal to half of school property taxes, up to $500. The biggest savings of all, though, may be Delaware’s lack of any sales tax whatsovever.
Delaware buried its estate tax at the end of 2017.
Income tax: 4% (on taxable income up to $10,000) — 8.95% (on taxable income above $1,000,000)
Sales tax: 5.75%
Go to the District of Columbia’s full state tax profile
Although the District exempts Social Security income, a steep 8.5% tax rate hits other income over $40,000. (The top income tax rate of 8.95% is reserved for taxable income over $350,000.) But many senior homeowners can get a substantial property tax break. Sales taxes are modest.
Average state and local sales taxes: 6.80%
Go to Florida’s full state tax profile
One of Kiplinger’s top ten most tax-friendly states for retirees, the Sunshine State is very popular with retirees, not just because of its abundant sunshine but also because of the absence of a state income tax. Permanent residents are entitled to a homestead exemption of up to $50,000, regardless of age, and seniors may qualify for an additional exemption.
Our ranking: Most Tax-Friendly
State income tax: 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) — 6% (on taxable income over $10,000 for married couples filing jointly; on taxable income over $7,000 for individual filers; and on taxable income over $5,000 for married couples filing separately).
Average state and local sales taxes: 7.23%
Go to Georgia’s full state tax profile
One of Kiplinger’s top ten most tax-friendly states for retirees, the Peach State is a peachy tax environment for retirees. Social Security income is exempt, and so is up to $35,000 of most types of retirement income for those age 62 to 64. For those 65 and older, the exemption is $65,000 per taxpayer. The statewide sales tax is 4%, but jurisdictions may add up to 4% of their own taxes. Seniors may qualify for deductions from property taxes.
Retirees whose income tops those exemptions have more reason to cheer Georgia: The top tax rate fell to 5.75% for 2019, and will go to 5.5% in 2020 if the governor and legislature reconfirm the reduction in that year’s legislative session.
Our ranking: Tax friendly
State income tax: 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 $200,000 for married couples filing jointly and surviving spouses; on over $400,000 for married couples filing separately and individual filers)
Average state and local sales taxes: 4.35%
Go to Hawaii’s full state tax profile
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 up at rates up to 11%. Seniors can also get big-dollar exemptions from property taxes (these vary by county), but keep in mind that Hawaiian housing values are sky-high.
State income tax: 1.125% (on taxable income up to $3,008 for married joint filers and up to $1,504 for individual filers) — 6.925% (on taxable income of $22,558 or more for married joint filers and $11,279 or more for individual filers)
Average state and local sales taxes: 6.03%
Go to Idaho’s full state tax profile
The Gem State taxes all income, except Social Security and Railroad Retirement benefits. Its top tax rate of 6.925% kicks in at a relatively low level. There is a generous retirement-benefits deduction — but only for those with qualifying public pensions. Idaho does not have an inheritance tax or estate tax.
State income tax: Flat 4.95%
Average state and local sales taxes: 8.70%
Go to Illinois’ full state tax profile
The Prairie State generously excludes a wide variety of retirement income from taxation. But combined state and local sales taxes are steep. In some areas, the combined rate can be as high as 11% — among the highest sales tax rates in the U.S. Property taxes are high in Illinois, too, but there are numerous homestead exemptions for seniors tied to age and income.
State income tax: Flat 3.23%
State sales tax: 7%
Estate tax/inheritance tax:
Go to Indiana’s full state tax profile
The Hoosier State promotes itself as a low-tax haven, but some retirees may beg to differ. While the 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. And in addition to state taxes, counties and school districts can levy income taxes as well. Local rates go as high as 3.38% (Pulaski County), but the average is 1.56%, according to the Tax Foundation.
It’s one of Kiplinger’s least tax-friendly states for retirees.
State income tax: 0.36% (on up to $1,598 of taxable income — 8.98% (on taxable income over $71,910)
Average state and local sales taxes: 6.82%
Go to Iowa’s full state tax profile
The Hawkeye State’s top income tax rate is a steep 8.98%, but retirees can exclude up to $6,000 of retirement-plan distributions if single ($12,000 if married) from state income taxes. Social Security benefits are free of state income tax.
Those income tax rates are coming down a bit: In 2019, the top rate will be 8.53% and the low rate, 0.33%. Iowa allows school districts to tax income as well. The average levy statewide is 0.22%, according to the Tax Foundation.
Property taxes lean high.
State income tax: 3.1% (on $2,500 or less of taxable income for single filers and $5,000 or less 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 state and local sales taxes: 8.68%
Go to Kansas’ full state tax profile
Faced with a ballooning budget deficit, lawmakers in Kansas boosted taxes in 2018, making the state even less friendly for retirees. Distributions from individual retirement accounts, 401(k) plans and out-of-state pensions are fully taxed. Kansas excludes Social Security benefits from state income taxes for residents with a federal adjusted gross income of $75,000 or less, but those with a higher AGI will pay taxes on those benefits, too.
With high sales taxes and property taxes above average, the Sunflower State is one of Kiplinger’s least-friendly states for retirees.
State income tax: Flat 5%
State sales tax: 6%
Estate tax/inheritance tax: No/Yes
Go to Kentucky’s full state tax profile
The Bluegrass State 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. Income that exceeds that exemption will face a 5% flat state tax, as well as local taxes, which average 2.08%, according to the Tax Foundation.
A 6% sales tax is imposed at the state level. Homeowners 65 and older qualify for a homestead provision that exempts part of the value of their property from state taxes. It’s one of Kiplinger’s top ten most tax-friendly states for retirees.
Our ranking: Tax-Friendly
State income tax: 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 for individuals; $100,000 for joint filers).
Average state and local sales taxes: 9.45%
Go to Louisiana’s full state tax profile
The Pelican State offers a bayou full of tax breaks to retirees. Social Security, military, civil-service, and state and local government pensions are exempt from state income taxes. Up to $6,000 per person of pension and annuity income are exempt from income taxes, and any income above that faces fairly low rates. But retirees will still pay some of the country’s highest sales taxes on everything they buy, including groceries.
State income tax: 5.8% (on taxable income less than $21,450 for single filers; less than $42,900 for joint filers) — 7.15% (on taxable income of $50,750 or more for single filers, $101,550 for joint filers)
State sales tax: 5.5%
Go to Maine’s full state tax profile
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.
Income above that threshold, though, will face fairly 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 state sales tax of 5.5% is due.
Our ranking: Least tax friendly
State income tax: 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)
Estate tax/inheritance tax: Yes/Yes
Go to Maryland’s full state tax profile
Maryland doesn’t tax Social Security benefits. If you are 65 or older or totally disabled (or your spouse is totally disabled), you qualify for an exclusion of up to $30,600 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. In addition to the state income tax (which has a top rate of 5.75%), Maryland’s 23 counties and Baltimore City levy additional income taxes ranging from 1.75% to 3.20% of taxable income; per the Tax Foundation, the average rate is 2.9%.
State income tax: Flat 5.1%
State sales tax: 6.25%
Go to Massachusetts’ full state tax profile
The Bay State offers a couple of breaks to retirees. Massachusetts does not tax Social Security and most government employee pension income. But all other income is taxed at a flat rate of 5.1%. Property taxes run high, although there is a refundable tax credit available to eligible homeowners 65 or older. Massachusetts also has its own estate tax.
State income tax: Flat 4.25%
State sales tax: 6.0%
Go to Michigan’s full state tax profile
In recent years, the Great Lakes State has become less tax-friendly for retirees. As of 2012, for retirees born after 1945, more pension income is subject to state income tax. The state imposes a flat-rate income tax of 4.25%, but cities have income taxes as well. Some seniors may be able to delay paying property taxes or receive a tax credit — but those property taxes are high.
State income tax: 5.35% (on less than $25,890 of taxable income for single filers and on less than $37,850 for joint filers) — 9.85% (on more than $160,020 of taxable income for single filers and on more than $266,700 for joint filers)
Average state and local sales taxes: 7.43%
Go to Minnesota’s full state tax profile
One of Kiplinger’s top ten least tax-friendly states for retirees, the North Star State offers cold comfort on the tax front to retirees. Social Security income is taxed to the same extent as it is on your federal return (albeit with a small, income-limited exemption). Most pensions are taxable, although military pensions are exempt. Income tax rates and the sales tax rate are high.
State income tax: 3% (on taxable income of $1,000 or more) — 5% (on more than $10,000 of taxable income)
Average state and local sales taxes: 7.07%
Go to Mississippi’s full state tax profile
One of Kiplinger’s top ten most tax-friendly states for retirees, the Magnolia State offers a sweet income tax deal for retirees. It not only exempts Social Security benefits from state income taxes, but it also excludes all qualified retirement income. Remaining income is taxed at a maximum of 5%. Plus, on property taxes, seniors qualify for a homestead exemption on the first $75,000 of value (and tax rates are very low anyway).
State income tax: 1.5% (on taxable income $103 or more) — 5.9% (on more than $9,253 of taxable income)
Average state and local sales taxes: 8.03%
Go to Missouri’s full state tax profile
The Show-Me State no longer taxes Social Security benefits for many taxpayers. Taxpayers may also qualify for exemptions on public and private pensions, subject to income limits — and all military pensions are exempt. But note that if you do have taxable income, the rate gets high quickly: 6% of income over $9,000. Some seniors may qualify for a property-tax credit.
State income tax: 1% (on up to $3,000 of taxable income) — 6.9% (on taxable income over $17,900)
State sales tax: None
Go to Montana’s full state tax profile
The Treasure State is one of five states that do not 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 of up to $4,110 per person, subject to certain income limitations. Residents 65 and older can exclude up to $800 for single filers (up to $1,600 for married filers) of interest income from state taxes.
State income tax: 2.46% (on up to $3,150 of taxable income for single filers and $6,290 for married couples filing jointly) — 6.84% (on taxable income over $30,420 for single filers and $60,480 for married couples filing jointly)
Average state and local sales taxes: 6.89%
Go to Nebraska’s full state tax profile
Average state and local sales taxes: 8.14%
Go to Nevada’s full state tax profile
One of Kiplinger’s top ten most tax-friendly states for retirees, the Silver State offers retirees a jackpot of tax savings — because there is no state income tax. But its state sales tax is 6.85%, and counties may add up to an additional 1.3%. Plus, almost every jurisdiction in Nevada gets a bite of the property tax apple.