Planning for retirement involves many considerations, and taxes play a significant role in how far your savings and benefits will stretch. One key factor to consider is whether your state taxes Social Security income. To help you make an informed decision, here’s a list of states that do not tax Social Security benefits. These states offer a tax-friendly environment for retirees, allowing you to make best of your retirement income and enjoy a more financially secure future.
Alabama
According to the Alabama Department of Revenue, the state does not tax Social Security income, aligning with its broader tax policy to support retirees. Alabama stands out as one of the states where Social Security benefits are fully exempt from state income taxes. This policy, coupled with a relatively low marginal state tax rate of 5.00%, makes Alabama a sought fater destination for retirees aiming to make most of their retirement incomes.
Alaska
Alaska stands out as a state with no personal income tax, which includes an exemption from taxing social security income. The state’s revenue system relies heavily on oil revenues and investments, allowing it to entirely forgo personal or social security income taxes. This makes Alaska an attractive destination for retirees looking to maximize their social security benefits without the burden of state taxes.
Florida
Florida is a popular choice for retirees, not only for its warm climate but also for its tax-friendly policies. According to the American Association of Retired Persons (AARP), the state does not impose an income tax, which means Social Security benefits are completely exempt from state taxation. However, depending on your income, you may have to pay a portion of your social security benefits as federal tax. Owing to its tax friendliness, Florida is home to a significant population of seniors, with more than 20,000 of its residents aged 65 and older.
Illinois
Illinois stands out as a state that exempts social security income from state taxes, providing substantial relief to its retirees. According to the Illinois Department of Revenue, the state exempts social security benefits from taxable income, aligning with its broader policy of not taxing retirement income, including pensions and 401(k) distributions. This policy is particularly advantageous in Illinois, where retirees’ median annual social security benefit is approximately $1,854.84.
Mississippi
Mississippi stands out as a retiree-friendly state by not taxing Social Security income, providing significant financial relief for its residents. This exemption applies regardless of the individual’s total income, ensuring that all retirees benefit from this policy. By not imposing state taxes on these benefits, Mississippi allows retirees to retain more of their income, aiding in the management of living expenses and healthcare costs.
Nevada
Nevada is a tax-friendly state for retirees, as it does not levy any state income tax on social security benefits. The state of Nevada has an overall tax burden of 7.37% of income. With no state income tax at all, Nevada allows retirees to keep more of their benefits compared to states that tax social security.
New Hampshire
New Hampshire stands out as a tax-friendly state for retirees, particularly due to its policy of not taxing social security income. According to the official report published by Kiplinger, the state imposes no income tax on wages or salaries, nor does it tax social security benefits. This means retirees can enjoy their social security income without worrying about state tax deductions.
Pennsylvania
The Keystone State, Pennsylvania, stands out as a tax-friendly state for retirees, notably exempting social security income from state taxation. Pennsylvania has a flat state income tax rate of 3.07%. However, some cities, like Philadelphia and Chester, have additional local income taxes, with rates up to 3.75%, as per the AARP report. The exemption on social security income directly benefits retirees as it reduces their financial burden.
South Dakota
South Dakota stands out as a tax-friendly state for retirees, as it does not levy any state income tax on Social Security benefits. South Dakota consistently ranks high in tax-friendliness for retirees, with data from the Tax Foundation indicating that the state has one of the lowest overall tax burdens in the nation, providing a financial haven for those on fixed incomes.
Tennessee
As of 2024, Tennessee does not impose a state income tax on social security benefits, making it an attractive option for seniors. According to the reports, the state has no personal income tax on wages and salaries either. This policy ensures that retirees in Tennessee can maximize their benefits without the burden of additional state taxes, aligning with the state’s broader approach to fostering a favorable tax environment for its residents.
Texas
Texas stands out as a haven for retirees, particularly due to its no-tax policy on social security income. According to the Texas Comptroller’s office, the state has no personal income tax, ensuring that social security benefits are not subject to state taxation. This policy is part of Texas’s broader tax strategy, which includes relying on sales and property taxes instead of income taxes. As of 2024, this approach provides significant financial relief for retirees, allowing them to maximize their social security benefits.
Washington
Washington is one of the most tax-friendly states for retirees, as it does not tax social security income, providing significant financial benefits for its residents. According to the latest US News report, Washington is known for its high cost of living, but this policy of having no state income tax at all, which includes exemptions on pensions and social security benefits, is a great opportunity for all senior citizens wanting to enjoy their retirement lives.
Wisconsin
Wisconsin stands out as one state that exempts Social Security income from state taxes, providing significant financial relief for its retirees. According to the Wisconsin Department of Revenue, the state does not tax Social Security benefits, aligning with policies designed to support the financial well-being of seniors. This no-tax policy allows retirees to maximize their social security income, ensuring more economic stability and more significant disposable income for other necessities and leisure.
