The Beatles struck a chord in more ways than one with their 1966 song "Taxman." Its lyrics included the lines:
Let me tell you how it will be. There's one for you, nineteen for me. 'Cause I'm the taxman.
Escaping the taxman is still difficult nearly six decades later. But could you have a much easier time if you're retired? Yep. It's true: These 13 states don't tax retirement income.
Image source: Getty Images.
Retirement relaxation without taxation
Where can you go to escape the taxman? The following states won't tax any of your retirement income:
- Alaska
- Florida
- Illinois
- Iowa
- Mississippi
- Nevada
- New Hampshire
- Pennsylvania
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
What do I mean by not taxing retirement income? None of these states tax Social Security retirement benefits. None of them tax 401(k) plan withdrawals. They don't tax IRA withdrawals, either. You won't have to pay income taxes on any pension benefits you receive.
Unfortunately, you won't be able to completely avoid paying income taxes. Uncle Sam wants U.S. retirees to pay federal income taxes regardless of where they live.
Different twists for different states
Not all of these 13 states single out retirees for special tax status. Nine of them don't have any state income tax at all:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
There's a catch with one of these states, though. Although the state of Washington doesn't tax most retirement benefits, it does tax capital gains. This tax might have gone away, but a ballot initiative to eliminate capital gains taxes didn't receive enough support in the November 2024 elections.
The other four states on the full list -- Illinois, Iowa, Mississippi, and Pennsylvania -- did implement tax policies to be more friendly to retirees. However, there are some things to be aware of in two of these states. Mississippi and Pennsylvania will tax early distributions from retirement accounts.
States where some retirement income isn't taxed
You're not entirely out of luck if you don't live in one of the 13 states where retirement income isn't taxed. At least some retirement income is exempt from income taxes in many other states. For example, the following states don't tax Social Security retirement benefits:
- Alabama
- Arizona
- Arkansas
- California
- Delaware
- Georgia
- Hawaii
- Idaho
- Indiana
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Missouri
- Nebraska
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- South Carolina
- Virginia
- Wisconsin
Alabama goes a step further. In addition to not taxing Social Security retirement benefits, the state won't tax pension income from defined benefit retirement plans. Hawaii doesn't tax distributions from private or pension plans stemming from contributions that weren't made by the retirees.
Federal taxes for retirees
Does the U.S. government exempt any retirement income from federal taxes? Yes, for a portion of Social Security benefits. How much of your Social Security benefits will be taxable depends on your combined income and tax filing status.
Combined income is calculated by adding adjusted gross income (AGI), nontaxable interest, and one-half of your Social Security benefits. The following table shows how much your Social Security benefit could be subject to federal income taxes:
| Filing Status | Combined Income | Social Security Benefits Taxable |
|---|---|---|
| Individual | Less than $25,000 | None |
| $25,000 to $34,000 | Up to 50% | |
| More than $34,000 | Up to 85% | |
| Married Filing Jointly | Less than $32,000 | None |
| $32,000 to $44,000 | Up to 50% | |
| More than $44,000 | Up to 85% | |
| Married Filing Separately | Any | Up to 85% |
Data source: Social Security Administration.
During his presidential campaign, Donald Trump pledged to eliminate federal income taxes on all Social Security retirement benefits. Retirees may be able to keep even more of their money in the future.
