States That Don't Tax Retirement Income

Thirty-eight states do not tax Social Security benefits at all. Twenty-one states do not tax pension income from any source. Only a handful of states tax both, and the rules vary widely — some states exempt military pensions, others exempt public employee pensions but not private ones, and some have income thresholds that phase out the exemption as you earn more.

The states with the most generous treatment are Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — these tax neither Social Security nor pension income. However, "no tax on retirement income" does not mean no state income tax at all. Most of these states fund government through sales tax, property tax, or other sources.

If you live in or are considering moving to a state with lower retirement taxes, you need to know three things: whether your specific type of income is covered by the exemption, whether you meet any age or income requirements, and what other taxes that state collects. A state with no pension tax but a 7 percent sales tax may cost you more than a state that taxes pensions at 3 percent.

Key Takeaways

  • Social Security is tax-free in 38 states; pensions are tax-free in 21 states, but the list differs by state and by pension type.
  • Some states exempt military or government pensions but tax private pensions, so you must check the specific rules for your income source.
  • States with no pension tax often collect revenue through sales tax, property tax, or income tax on wages, so total tax burden depends on your spending and assets, not just retirement income.
  • A few states tax both Social Security and pensions but allow deductions or credits that reduce the actual tax owed.

States That Tax Social Security

Only 12 states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Even in these states, the tax is usually limited — most use federal tax rules, which means you only owe state tax if your combined income (adjusted gross income plus half your Social Security) exceeds a threshold.

Colorado, for example, taxes Social Security only if your federal taxable income exceeds $25,000 (single) or $32,000 (married filing jointly). Connecticut and Kansas have similar thresholds. This means many retirees in these states pay no state tax on Social Security even though the state technically allows it.

If you receive Social Security and live in one of these 12 states, you should check your state's tax forms or contact your state revenue office to see whether your specific income level triggers a tax. The threshold changes year to year, and some states adjust it for inflation.

States That Tax Pensions

Twenty-nine states tax at least some pension income. However, the rules are not uniform. Some states exempt pensions from public employees (teachers, police, firefighters) but tax private pensions. Others exempt military pensions. A few have income thresholds — you pay tax only if your pension exceeds a certain amount or your total income exceeds a certain level.

States with broad pension taxes include California, Connecticut, Delaware, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Vermont, and Virginia. However, many of these allow partial or full exemptions based on pension source or age.

New Hampshire, for instance, taxes pension income but exempts military pensions and pensions from certain public employees. Pennsylvania taxes most pensions but exempts military pensions entirely. You cannot assume a state taxes all pensions — you must check the specific exemptions that apply to your pension type and your age.

Military Pensions and Government Employee Pensions

Military pensions receive special treatment in many states. Thirty-one states exempt military retirement pay from state income tax entirely, regardless of age or income. These include Alabama, Alaska, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, and Wyoming.

Government employee pensions — from teachers, police, firefighters, and other public workers — are treated differently. Some states exempt them entirely. Others tax them at the same rate as other income. A few states exempt government pensions but tax private pensions. For example, Illinois exempts all pensions, but New York exempts government pensions and military pensions while taxing private pensions.

If you receive a government pension, check your state's rules specifically for public employee pensions, not just "pensions" in general. The exemption often depends on whether you worked for a state agency, a local government, or a federal agency.

Income Thresholds and Age-Based Exemptions

Several states use income thresholds or age requirements to determine whether you pay tax on retirement income. These rules phase out the exemption as your income rises or disappear once you reach a certain age.

Georgia, for example, exempts retirement income for residents age 62 and older, but the exemption phases out if your income exceeds $35,000 (single) or $70,000 (married). Louisiana exempts retirement income for residents age 59½ and older, with no income limit. Mississippi exempts all retirement income with no age requirement and no income limit.

If you are near a state's income threshold, a small increase in pension or Social Security could push you into a tax bracket. Some retirees in these states use strategies like deferring withdrawals from retirement accounts or timing the sale of assets to stay below the threshold. You should calculate your total income for the year before deciding whether to take a large withdrawal or distribution.

How to Find Your State's Rules

Your state's revenue or taxation department publishes the official rules for retirement income. Most states have a website with a section for retirees or seniors that lists which income types are exempt. You can also call the department directly — they have staff trained to answer questions about pension and Social Security taxation.

If you receive a pension, your pension administrator or the agency that pays it can tell you whether your state taxes that specific pension type. If you receive Social Security, the Social Security Administration does not determine state tax — you must check your state's rules. If you are considering moving to another state, contact that state's revenue office before you move to confirm the tax treatment of your income.

Many states also offer free tax preparation for low-income retirees through the Volunteer Income Tax Assistance (VITA) program. VITA sites can help you understand your state's retirement income rules and prepare your return correctly.

Other State Taxes That Affect Retirees

Even if your state does not tax retirement income, you may still owe state tax on other sources of income — wages, interest, dividends, rental income, or capital gains. Additionally, most states collect sales tax, and some collect property tax on real estate or personal property.

A state with no pension tax but a 9 percent sales tax may result in a higher total tax burden than a state with a 3 percent pension tax and a 5 percent sales tax, depending on how much you spend. Property tax also varies widely — some states with low income tax have high property tax, and vice versa. If you are moving to minimize taxes, calculate your total state and local tax burden, not just income tax on retirement income.

Some states also offer property tax exemptions or deferrals for seniors or disabled residents, which can offset income tax. Check your state's website for programs that may reduce your overall tax bill.

Frequently Asked Questions

Do I have to move to a state with no pension tax to avoid paying tax on my pension?

No. Your state of residence when you receive the pension determines the tax, not where you worked or where the pension is paid from. If you move to a state with no pension tax after you retire, that state will not tax your pension. However, moving involves costs — property, sales tax, and other expenses — so calculate whether the tax savings justify the move.

If I move to a state with no pension tax, do I have to pay tax to my old state?

No, once you establish residency in a new state, your old state generally cannot tax your pension. However, you must prove you are a resident of the new state — usually by obtaining a driver's license, registering to vote, and establishing a permanent home there. Some states have rules about how long you must live there before the exemption applies.

Does the federal government tax my Social Security or pension?

Yes, the federal government may tax both. Up to 85 percent of your Social Security benefits may be subject to federal income tax if your combined income exceeds certain thresholds. Pensions are generally taxable as ordinary income at the federal level. State tax is separate from federal tax — a state may not tax Social Security even though the federal government does.

What if I receive both a pension and Social Security?

Your state taxes each income source according to its own rules. If your state does not tax Social Security but does tax pensions, you pay tax only on the pension. If your state taxes both, you pay tax on both. Some states use your total income to determine whether you owe tax, so receiving both sources might push you over an income threshold.

Can I claim a deduction or credit for state taxes I pay on my pension?

You can deduct state and local taxes (SALT) on your federal return, but the deduction is capped at $10,000 per year. This deduction applies to income tax, sales tax, and property tax combined. If you pay state tax on your pension, it counts toward this cap but does not exceed it for most retirees.