The best states for taxes for retirees usually combine no income tax with low property levies, and that combination matters more than most people realize.
According to the Tax Foundation, a nonpartisan tax policy research group, state and local tax burdens vary widely across the country, and for a retiree drawing from savings, that gap can mean thousands of dollars a year. Sound planning starts with understanding which taxes actually hit you after you stop working.
This guide breaks down the five best states, the trade-offs each one hides, and a practical framework you can use to compare them against your own income mix.
Why Alaska and Wyoming Top Most Retiree Tax Lists
Alaska and Wyoming lead because they have no state income tax and no state-level tax on Social Security or pension income, which is rare among the 50 states.
Alaska is the standout: it collects no state income tax and no state sales tax either, though local municipalities may levy sales taxes. Wyoming also skips income tax entirely and keeps property taxes moderate compared with coastal states. The practical catch is cost of living and access to services.
Neither state offers a dense network of specialists, hospitals, or cultural amenities that many retirees expect.
Consider a retiree with a $60,000 annual mix of Social Security and IRA withdrawals. In a state with a 5% flat income tax, that could mean roughly $2,000–$3,000 in state tax depending on exclusions. In Wyoming, it's zero at the state level. That difference compounds over a 25-year retirement.
- Action tip: Before committing, test your specific income mix with a state tax calculator rather than relying on "no income tax" headlines.
- Reality check: Property taxes and sales taxes can offset income tax savings, so compare total burden, not just one line.
How to apply this: list your income sources (Social Security, pension, IRA, dividends) and check each state's treatment of every source, not just the headline rate.
Alaska and Wyoming sit at the top of nearly every ranking of the best states for taxes for retirees. No income tax at all, plus no levy on Social Security or pensions, puts both in rare company.
Federal rules can still reach your benefits even in a state with no income tax of its own. That is why the best states for taxes for retirees are judged on combined federal and state treatment.
Florida and Tennessee: No Income Tax With More Infrastructure
Florida and Tennessee both forgo a state income tax on wages and retirement income, and both offer far more infrastructure than the no-income-tax western states.
Florida is the classic choice for the best states for taxes for retirees because it has no state income tax and no tax on Social Security benefits. Its weakness is property insurance, which has climbed sharply in recent years and can rival a mortgage payment in coastal counties.
Tennessee eliminated its Hall tax on investment income in 2021, so it now taxes neither wages nor most retirement income, though the sales tax is among the higher state rates. According to the Tax Foundation's State Business Tax Climate Index, both states rank well on individual income tax structure.
In one case, a retiree moving from a northeastern state with a 6% income tax to Florida reported saving enough on state taxes to offset higher homeowners insurance, but only after shopping three carriers.
- Florida: No income tax, no Social Security tax, watch property insurance.
- Tennessee: No income tax on retirement income, higher sales tax, no estate tax.
How to apply this: request insurance quotes for a specific address before you fall in love with a ZIP code — insurance, not income tax, is often the surprise line item.
South Dakota and Nevada: Zero Income Tax, Hidden Costs
South Dakota and Nevada both have no state income tax, but each replaces that revenue with other levies you should model carefully.
South Dakota taxes neither individual income nor Social Security and keeps property taxes relatively low, which makes it quietly competitive. Nevada has no income tax but relies heavily on sales and gaming taxes, and its property tax abatements can help long-term owners.
The best states for taxes for retirees are not automatically the cheapest overall — a state with a modest income tax but low property and sales taxes can beat a "zero income tax" state for some income profiles.
The Tax Foundation notes that state tax codes differ in how they treat retirement income specifically, so a state that taxes wages may still exempt pensions.
A useful approach is to build a simple three-line model: income tax owed, property tax owed, sales tax estimate on your spending. Rank states by the total.
- Tip: Nevada's lack of income tax is real, but sales tax on everyday purchases adds up for high-spending households.
- Tip: South Dakota's low property taxes reward homeowners with modest budgets.
How to apply this: estimate your annual spending and multiply by each state's combined sales tax rate to see the true cost of "no income tax."
States With No Tax on Social Security but an Income Tax
Several states tax wages but exempt Social Security benefits, which can make them surprisingly strong picks for retirees living mostly on benefits.
According to the Social Security Administration, a growing share of beneficiaries owe federal tax on benefits, so state-level exemptions matter. States including Pennsylvania, Illinois, and Mississippi exempt Social Security from state income tax, and some exempt pension income too.
The best states for taxes for retirees do not have to be zero-income-tax states — they just have to match your income sources. A retiree whose income is 80% Social Security and 20% modest withdrawals may pay almost nothing in a state with a Social Security exemption and a low rate.
- Pennsylvania: Exempts Social Security and most retirement income for older residents.
- Illinois: Exempts Social Security and retirement plan distributions.
- Mississippi: Phased out its income tax on retirement income and continues to reduce its rate.
How to apply this: check whether your state exempts Social Security specifically — an exemption can outweigh a low flat rate.
Comparing the Top Contenders at a Glance
The table below compares leading states on the taxes that matter most to retirees, with an action step for each.
| State | Income tax | Social Security taxed? | What to check |
|---|---|---|---|
| Alaska | None | No | Local sales taxes |
| Wyoming | None | No | Property tax and services |
| Florida | None | No | Home insurance quotes |
| Tennessee | None | No | Sales tax on spending |
| South Dakota | None | No | Property tax on your home |
| Nevada | None | No | Sales and gaming taxes |
| Pennsylvania | Flat, low | No | Pension exemption rules |
The best states for taxes for retirees in this table share one trait: no income tax or a clear retirement exemption. Use the action column to model your own numbers before deciding.
How to apply this: copy this table into a spreadsheet and replace the right column with your own dollar estimates.
What the IRS and State Rules Actually Say
The IRS explains that Social Security benefits become taxable at the federal level once combined income exceeds certain thresholds, and state rules sit on top of that. That means even a "no tax" state does not eliminate federal tax on benefits.
The IRS publishes thresholds for taxable benefits, and states set their own treatment. The Tax Foundation's State Business Tax Climate Index is a useful reference for comparing how states structure individual income taxes, though it is not retirement-specific.
A common scenario: a retiree assumes moving to a no-income-tax state solves everything, then discovers federal tax on benefits still applies and state property taxes are higher than expected.
- Key point: Federal tax on Social Security is unavoidable through a state move.
- Key point: State exemptions for pensions and IRAs vary and often have age or income limits.
How to apply this: run your projected federal and state tax together using a free tax estimator or a CPA before finalizing a move.
Start by modeling how much of your pension each state would actually exempt. A full exclusion in a modest-tax state often beats a zero-tax state, making it one of the best states for taxes for retirees in practice.
Yes, several low-tax states still fund solid infrastructure, healthcare, and transit. A state that exempts Social Security while charging a low flat rate can rank among the best states for taxes for retirees with strong services.
Frequently Asked Questions About best states for taxes for retirees
How do I compare the best states for taxes for retirees if I have a pension?
Model the pension exemption first. Some states exempt all pension income, others cap it by age or dollar amount. A state with a modest income tax but a full pension exclusion can beat a zero-tax state for pension-heavy retirees. Check the specific exclusion rules rather than the headline rate.
When comparing the best states for taxes for retirees with a pension, model your pension exemption before anything else.
A state with a modest income tax but a full pension exclusion can beat a zero-tax state, so check the best states for taxes for retirees carefully.
What if I split my year between two states?
Residency rules decide your tax home. Most states require you to establish domicile through voter registration, driver's license, and days present. If you snowbird, keep careful records of days in each state. The best states for taxes for retirees may not apply if your domicile stays in a high-tax state.
Do property taxes or sales taxes matter more for retirees?
It depends on whether you own a home and how much you spend. Homeowners should weight property taxes heavily, while renters and high spenders should weight sales taxes. Build a total-burden estimate for the best states for taxes for retirees you are considering, then compare.
Are there states that tax retirement income lightly but have good services?
Yes. Several states with a modest income tax fund stronger infrastructure, healthcare, and transit than zero-tax states. If services matter, a state that exempts Social Security while charging a low flat rate can be the better pick. Compare services and tax together.
Yes, several of the best states for taxes for retirees levy a modest income tax yet fund stronger infrastructure and healthcare.
If public services matter to you, weigh the best states for taxes for retirees that exempt Social Security while charging a low flat rate.
What mistakes do retirees make when choosing a state for taxes?
The biggest mistake is ignoring total cost of living, insurance, and healthcare. Another is assuming a no-income-tax state is always cheapest. Verify the best states for taxes for retirees against your actual income sources, and consult a tax professional before moving.
Conclusion
Choosing where to retire on tax grounds is really a math problem, not a slogan contest. Keep these points in mind:
- No-income-tax states like Alaska, Wyoming, Florida, Tennessee, South Dakota, and Nevada lead on headline rates.
- States with a Social Security or pension exemption can win for benefit-heavy incomes.
- Property, sales, and insurance costs often decide the real winner.
- Federal tax on Social Security applies no matter which state you pick.
Start by listing your income sources and running a total-burden estimate for your top three states. Then verify insurance and property costs for a specific address. With that done, you can confidently identify the best states for taxes for retirees that fit your income — and your life.
