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State Taxes in Retirement: The Best and Worst States for Retirees in 2026

Key Takeaways

Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming

Only eight states tax Social Security benefits in 2026: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont (West Virginia just completed its full exemption)

Property taxes vary more dramatically than income taxes — New Jersey averages 2.23% vs. Hawaii at 0.32%

The “best” state depends on your income mix: a retiree living on Social Security faces different tax math than one drawing $200,000 from a 401(k)

Where you live in retirement can affect your after-tax income by $5,000-$25,000 per year. State income taxes on retirement income, Social Security taxation, property taxes, and sales taxes combine to create vastly different total tax burdens. A retiree with $80,000 in annual income might pay $0 in state income tax in Florida and $5,000+ in California. This guide breaks down the complete state tax picture for retirees in 2026.

States With No Income Tax

Nine states impose no income tax on any type of income, including retirement distributions:

State	Sales Tax Rate	Average Property Tax Rate	Cost of Living Index	Notable for Retirees
Alaska	0% (local only)	1.04%	127	No income or sales tax; high cost of living; PFD dividend
Florida	6.0%	0.80%	101	No estate/inheritance tax; extensive senior services
Nevada	6.85%	0.53%	103	Low property tax; higher sales tax
New Hampshire	0%	1.57%	109	No sales tax; high property taxes; interest/dividend tax fully repealed
South Dakota	4.5%	1.08%	92	Low cost of living; no estate tax
Tennessee	7.0%	0.56%	90	Low property tax; high sales tax; low cost of living
Texas	6.25%	1.60%	93	No income tax but high property taxes; large metro options
Washington	6.5%	0.87%	110	No income tax; higher cost of living in Seattle area
Wyoming	4.0%	0.55%	94	Lowest chronic disease rate among Medicare beneficiaries (44%)

The catch with no-income-tax states: Several compensate with higher property taxes (Texas, New Hampshire) or sales taxes (Tennessee, Washington). A retiree who rents and spends modestly may benefit less from no income tax than one who owns property and spends freely.

As of 2026, only eight states tax Social Security benefits — and most offer significant exemptions for lower-income retirees:

State	How Social Security Is Taxed	Exemption Threshold
Colorado	Fully exempt if 65+; taxed under 65 with exemptions	100% exempt at 65+
Connecticut	Exempt below AGI thresholds	Exempt if AGI under $75,000 (single) / $100,000 (joint)
Minnesota	Partially taxed; follows federal formula with state subtraction	Subtraction phases out at higher incomes
Montana	Partially taxed; deduction available	Deduction reduces taxable amount
New Mexico	Partially taxed; exempt below income thresholds	Exempt if AGI under $100,000 (single) / $150,000 (joint)
Rhode Island	Exempt below income thresholds	Exempt if AGI under $101,000 (single) / $126,250 (joint)
Utah	Taxed as income; credit available	Tax credit offsets for lower-income retirees
Vermont	Partially taxed; follows federal formula with exemptions	Exemptions for lower-income retirees

Recent change: West Virginia completed its three-year phase-out in 2026, fully exempting all Social Security benefits from state income tax regardless of income. This is a significant improvement for West Virginia retirees.

For a deeper understanding of how Social Security is taxed at the federal level, see our Social Security claiming strategy guide.

States That Exempt Retirement Income

Many states with income taxes provide partial or full exemptions for certain types of retirement income:

Full Exemption on All Retirement Income

Illinois: No tax on retirement income from 401(k), IRA, pensions, Social Security
Iowa: No tax on retirement income for those 55+ (effective 2023)
Mississippi: No tax on retirement income from qualified plans
Pennsylvania: No tax on retirement distributions after age 59.5

Significant Retirement Income Exemptions

Georgia: $65,000 exemption per person (65+) from retirement income
Virginia: Age-based deductions for pension and IRA income
Kentucky: First $31,110 of retirement income exempt
Michigan: Pension income exempted for those born before 1946; partial for later years

Property Tax: The Other Major Factor

Property taxes often exceed income taxes for retirees who own their homes. The variation between states is dramatic:

Highest Average Property Tax Rates (2026)

State	Effective Property Tax Rate	Tax on $300,000 Home
New Jersey	2.23%	$6,690
Illinois	2.08%	$6,240
New Hampshire	1.57%	$4,710
Connecticut	1.57%	$4,710
Texas	1.60%	$4,800

Lowest Average Property Tax Rates (2026)

State	Effective Property Tax Rate	Tax on $300,000 Home
Hawaii	0.32%	$960
Alabama	0.37%	$1,110
Louisiana	0.51%	$1,530
Wyoming	0.55%	$1,650
Tennessee	0.56%	$1,680

Property Tax Exemptions for Seniors

Many states and localities offer property tax relief for seniors:

Homestead exemptions: Reduce the taxable value of your primary residence (Florida exempts $50,000; Texas exempts $100,000 for 65+)
Tax freezes: Lock your assessment at a certain level after age 65 (available in some Texas, Illinois, and Georgia counties)
Circuit breaker programs: Limit property taxes as a percentage of income (available in about 20 states)
Deferrals: Allow seniors to defer property taxes until the home is sold (available in many states, including Oregon, Texas, and Massachusetts)

The Worst States for Retirement Taxes

New Jersey

Top income tax rate: 10.75%
Average property tax: 2.23% (highest in the nation)
Social Security: Not taxed
Other retirement income: Partially exempt ($100,000+ is taxable)
Combined impact: Despite not taxing Social Security, New Jersey’s combination of high income tax rates and the nation’s highest property taxes makes it one of the most expensive states for retirees.

California

Top income tax rate: 13.3% (highest in the nation)
Average property tax: 0.71% (moderate, thanks to Prop 13)
Social Security: Not taxed
Other retirement income: Fully taxed
Combined impact: High earners drawing down large 401(k)s or IRAs face steep income taxes. Retirees living on Social Security and modest savings fare better.

New York

Top income tax rate: 10.9% (plus NYC local tax of 3.876%)
Average property tax: 1.40%
Social Security: Not taxed
Other retirement income: Government pensions exempt; private pensions partially taxed
Combined impact: New York City retirees face a combined state + city top rate of nearly 15% on non-exempt retirement income.

Minnesota

Top income tax rate: 9.85%
Average property tax: 1.02%
Social Security: Partially taxed (with subtraction)
Other retirement income: Fully taxed
Combined impact: One of only eight states taxing Social Security, combined with high income tax rates.

The Best States for Retirement Taxes

Wyoming

No income tax, low property tax (0.55%), low sales tax (4.0%), and the nation’s lowest chronic disease rate among Medicare beneficiaries. Overall ranked number 1 by CareScout for 2026.

Florida

No income tax, no estate or inheritance tax, moderate property taxes (with a generous $50,000 homestead exemption), and extensive senior services infrastructure.

Tennessee

No income tax (interest and dividend tax fully repealed), very low property tax (0.56%), and one of the lowest costs of living in the country. Higher sales tax (7%) is the main drawback.

South Dakota

No income tax, moderate property tax, low cost of living (91.8 index), and no estate tax.

Nevada

No income tax, the lowest property tax rate among no-income-tax states (0.53%), and a moderate cost of living.

How to Evaluate Your Personal Situation

The “best” state depends on your specific income sources:

Best states: Any no-income-tax state, or states with generous retirement income exemptions (Illinois, Pennsylvania, Mississippi). Social Security taxation matters only in the eight states listed above, and most exempt lower-income retirees.

Retiree Profile B: $150,000 from 401(k)/IRA Withdrawals

Best states: No-income-tax states are the clear winners. States like California (13.3% top rate) or New York (10.9%) could take $12,000-$15,000+ annually. The difference between Florida and California could be $100,000+ over a 20-year retirement.

Retiree Profile C: Homeowner with Significant Home Value

Best states: Low property tax states regardless of income tax situation. The difference between New Jersey (2.23%) and Hawaii (0.32%) on a $500,000 home is $9,550 per year.

Retiree Profile D: High Earner Worried About IRMAA

Note that state taxes do not affect IRMAA — Medicare surcharges are based on federal MAGI. However, living in a no-income-tax state leaves more after-tax income to cover healthcare costs, which can be substantial.

Tax Planning Strategies

1. Establish Residency Before Major Distributions

If you plan to move to a tax-friendly state, establish residency before taking large 401(k)/IRA distributions, Roth conversions, or selling appreciated assets.

2. Maintain Legitimate Domicile

States like New York and California aggressively audit former residents. Maintain documentation of your new domicile: voter registration, driver’s license, bank accounts, doctors, and more than 183 days of physical presence.

3. Consider Part-Year Residency Rules

Some states tax income earned while you were a resident, even if you move mid-year. Plan your move timing to minimize dual-state taxation.

4. Factor in Estate and Inheritance Taxes

Some states impose estate taxes with exemptions well below the federal level ($6.94 million federal in 2026). Massachusetts and Oregon, for example, tax estates above $1 million. If your estate is sizable, this can matter as much as income taxes.

The Bottom Line

State tax differences are real and substantial — potentially worth $5,000-$25,000 per year depending on your income level and mix. But taxes are only one factor. Healthcare quality, proximity to family, cost of living, climate, and quality of life all matter. A state with no income tax but poor healthcare infrastructure or extreme isolation may not serve your retirement well. Use the tax analysis to inform your decision, but do not let it be the only factor. The best retirement is one where your financial plan, your health plan, and your life plan all align.

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