Key takeaways 

• Eight U.S. states levy no individual income tax
• Retirement income tax rules differ widely across states
• Property and sales taxes also affect retirees’ budgets
• Tax policies shift; updated research is essential

Some U.S. states do not tax retirement income, while others tax pensions, 401(k) withdrawals, or Social Security benefits. In 2025, eight states have no income tax, and nine states tax Social Security. Retirees should also weigh property and sales taxes when considering relocation. Tax rules change, so review state laws regularly.

Most retirement savers tend to focus on how much money they’re putting away for retirement and how much their investments are earning. These are certainly important factors when it comes to planning for a financially comfortable retirement.

But there’s another critical — and often overlooked— factor that’s just as important: taxes. Different states tax retirement, pension and Social Security income differently. There are also big differences in how states assess sales and use taxes and how localities assess sales and property taxes, especially on residential real estate.

These differences in taxation could have a big impact on your retirement finances, especially when it comes to how long your retirement nest egg lasts. So, it’s a good idea to do some research into state taxation before deciding where you’ll spend your golden years.

States with no individual income tax 

There are currently eight states in which individual income is not subject to tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington, and Wyoming.¹

State taxation of retirement income differs significantly across the U.S. Some states completely exclude retirement earnings from taxes, while others apply varying levels of taxation to pension payments, IRA and 401(k) withdrawals, military retirement pay, and Social Security benefits.²

Some states may provide a credit or exemption for a portion of pension income. Other states do not tax pension income — they include:³

• Alabama
• Alaska
• Florida
• Hawaii
• Illinois  
• Iowa
• Mississippi  
• Nevada
• New Hampshire
• Pennsylvania  
• South Dakota
• Tennessee  
• Texas
• Washington
• Wyoming

The state income tax rate is another important consideration. In Arizona, New Mexico, North Dakota and Ohio, for example, marginal income tax rates are below 5%. Colorado, Illinois, Indiana, Michigan and Pennsylvania, meanwhile, each have flat tax rates below 5%.

Conversely, the states with the highest maximum income rate in 2025 are California (13.3%), Hawaii (11%), New York (10.9%), New Jersey (10.75%), Oregon (9.9%), Minnesota (9.85%), Massachusetts (9%) and Vermont (8.75%).⁴

Which states tax social security income? 

Meanwhile, nine states also tax Social Security income:⁵

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia

Some of these states that tax Social Security income provide tax breaks for low-income couples and individuals. Also, West Virginia will complete a phase out of state taxation of Social Security benefits in 2026.

The role of sales taxes in retirement 

State income taxes aren’t the only taxes that can affect your income in retirement. State sales and local sales and use taxes can also take a bite out of your retirement finances. All states and the District of Columbia impose these taxes except Alaska, Delaware, Montana, New Hampshire and Oregon.

The highest state sales taxes in 2025 are in California (7.25%), Indiana, Mississippi, Rhode Island and Tennessee (7.0% in each). On the flip side, the lowest state sales taxes are in Colorado (2.9%), Alabama, Georgia, Hawaii, New York, and Wyoming (4.0% in each). Local sales and use taxes, meanwhile, are assessed by cities, counties and special taxing jurisdictions. These vary widely across the country.6

Property taxes in retirement 

State and local property taxes are another important factor to consider. The biggest property tax paid by most retirees is the annual tax paid on the value of their home. However, some states and local jurisdictions offer property tax exemptions, credits and abatements to retirees, such as an exemption from paying the school tax portion of their property taxes.

Key considerations for retirement tax planning 

Retirement tax planning can be complicated, and the details vary from one individual or couple to the next. It may be a good idea to work with a tax advisor and personal financial planner for guidance in your specific situation.

Managing your tax situation is a year-round — and life-long — endeavor, but you can take a few actions now to help get yourself on the right track

1. Sign up for the Empower Personal Dashboard if you don’t already have access. Millions of people use these free and secure professional-grade online financial tools. You can use them to see all your accounts in one place, analyze your spending and plan for long-term financial goals.
2. Consider talking to a financial advisor and tax advisor for more detailed guidance on your tax optimization strategies.

Frequently asked questions about state retirement taxes 

Which states have no income tax at all? 

As of 2025, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no individual income tax. New Hampshire is phasing out its tax on interest and dividends and expects to become a no-income-tax state by 2027.

Do any states still tax Social Security benefits? 

Yes. In 2025, nine states tax Social Security benefits, including Colorado, Minnesota, Rhode Island, and Vermont.

How do property taxes affect retirees? 

Property taxes vary by state and county. Some states offer credits or exemptions for older adults to reduce the burden.

Are sales taxes important for retirees? 

Yes. High sales taxes in states like California and Tennessee can significantly affect retirement budgets.

How do cost of living and taxes interact in retirement? 

Low or no-income tax states may still have high property, housing, or healthcare costs. Retirees often weigh overall affordability — not just state tax policy — when deciding where to live.