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Retirement Taxes By State 2021

Retirees continue to pay taxes in retirement. Taxes will be calculated much like how they are before retirement and it is important to estimate the amount one will pay in retirement so that finances can be planned accordingly.

If a person is relocating to a different state for retirement, it is important to examine the state taxes on retirement benefits. Some states are friendlier for retirees tax-wise than others, and because retirees have special financial concerns, taxes can be a large factor when deciding where it is best to retire.

Special financial concerns for retirees include whether Social Security benefits are taxable at the state level, property taxes, and how retirement account and pension withdrawals are taxed.

There are seven states with no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee impose income taxes only on dividends and interest (which Tennessee is getting rid of in 2020). These nine states are considered to be “tax-friendly” or “most-tax friendly” for retirees among others.

The ten most tax-friendly states for retirement (in no particular order) are:

  1. Alaska
  2. Florida
  3. Georgia
  4. Kentucky
  5. Mississippi
  6. Nevada
  7. New Hampshire
  8. Pennsylvania
  9. South Dakota
  10. Wyoming

Some states allow tax exemption for military personnel or emergency services personnel, or allow deductions up to a certain amount. Some states do not offer any retirement income tax benefits. These states are considered to be “not tax-friendly,” “least tax-friendly,” or “mixed.”

The ten least tax-friend states for retirement (in no particular order) are:

  1. Connecticut
  2. Indiana
  3. Kansas
  4. Maryland
  5. Minnesota
  6. Nebraska
  7. New Mexico
  8. Utah
  9. Vermont
  10. Wisconsin

In addition to income tax, retirees must also consider sales, property, estate, and inheritance tax rates.

Below is a table of each state’s tax friendliness for retirement categorized by most tax-friendly, tax-friendly, least tax-friendly, not tax-friendly, and mixed.

Retirement Taxes By State 2021

State Retirement Tax Friendliness 2021 Pop.
AlabamaTax-Friendly4,934,193
AlaskaMost Tax-Friendly724,357
ArizonaMixed7,520,103
ArkansasNot Tax-Friendly3,033,946
CaliforniaMixed39,613,493
ColoradoMixed5,893,634
ConnecticutLeast Tax-Friendly3,552,821
DelawareTax-Friendly990,334
FloridaMost Tax-Friendly21,944,577
GeorgiaMost Tax-Friendly10,830,007
HawaiiTax-Friendly1,406,430
IdahoMixed1,860,123
IllinoisMixed12,569,321
IndianaLeast Tax-Friendly6,805,663
IowaNot Tax-Friendly3,167,974
KansasLeast Tax-Friendly2,917,224
KentuckyMost Tax-Friendly4,480,713
LouisianaTax-Friendly4,627,002
MaineMixed1,354,522
MarylandLeast Tax-Friendly6,065,436
MassachusettsNot Tax-Friendly6,912,239
MichiganNot Tax-Friendly9,992,427
MinnesotaLeast Tax-Friendly5,706,398
MississippiMost Tax-Friendly2,966,407
MissouriMixed6,169,038
MontanaNot Tax-Friendly1,085,004
NebraskaLeast Tax-Friendly1,951,996
NevadaMost Tax-Friendly3,185,786
New HampshireMost Tax-Friendly1,372,203
New JerseyMixed8,874,520
New MexicoLeast Tax-Friendly2,105,005
New YorkNot Tax-Friendly19,299,981
North CarolinaNot Tax-Friendly10,701,022
North DakotaTax-Friendly770,026
OhioMixed11,714,618
OklahomaNot Tax-Friendly3,990,443
OregonNot Tax-Friendly4,289,439
PennsylvaniaMost Tax-Friendly12,804,123
Rhode IslandNot Tax-Friendly1,061,509
South CarolinaTax-Friendly5,277,830
South DakotaMost Tax-Friendly896,581
TennesseeTax-Friendly6,944,260
TexasTax-Friendly29,730,311
UtahLeast Tax-Friendly3,310,774
VermontLeast Tax-Friendly623,251
VirginiaTax-Friendly8,603,985
WashingtonTax-Friendly7,796,941
West VirginiaNot Tax-Friendly1,767,859
WisconsinLeast Tax-Friendly5,852,490
WyomingMost Tax-Friendly581,075

Retirement Taxes By State 2021