Deciding where to live after retirement can be a very complicated issue. There are a number of circumstances to consider, starting with the quality of life you want to have or, simply, the one you can afford.
There is also the issue of health, access to food, transportation, leisure, social life, and, of course, taxes. What a tricky topic to know how much money from your retirement the state is going to want to claim in taxes.
Knowing how much money you will have to pay in taxes per year of your retirement or your post-retirement income will determine how much is left free for your expenses and other needs.
10 States that Tax Social Security, Retirement Benefits
In 2024, there are a total of 10 states that charge some kind of individual income tax to retired people. These states are:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Montana
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Each state has its own tax law and its own percentage amount of money it charges to people with income, such as individual retirement accounts or Social Security benefits.
Taxes are charged if the retired person’s income exceeds certain limits or parameters. To find out exactly how much you have to pay in these states, it is advisable to consult with a local retirement or tax expert or approach the nearest local tax agency.
Most States Won’t Tax Social Security Retirement in 2024
Luckily for most retirees who don’t want to risk losing a portion of their income to taxes (hey, they already paid taxes for decades while working!), most states, including also Washington D.C., do not impose any tax on Social Security benefits, at least in 2024.
These states are as follows:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Missouri
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- Wisconsin
- Washington, D.C.
- Wyoming
Local and State Taxes That May Affect Your Income During Retirement
State income taxes aren’t the only taxes that can take a serious bite out of your income in retirement. There are also sales taxes, as well as value added taxes, among others.
Almost all states and the District of Columbia impose these taxes. The only states that don’t have them are Alaska, Delaware, Montana, New Hampshire and Oregon. The state with the highest state sales tax is California, with 7.25%, and it is followed by other states such as Indiana, Mississippi, Rhode Island and Tennessee with 7.0% each.
On the other hand, the states with the lowest sales taxes are Colorado with just 2.9%, and Alabama, Georgia, Hawaii, Louisiana, New York, South Dakota and Wyoming (3.0% in each). Please note that local sales and use taxes are also assessed by cities, counties, and special tax jurisdictions within the United States, and can vary widely.