While taxes help pay for many of the services and infrastructure we enjoy every day, from public schools to road maintenance to healthcare, taxes ensure our communities have access to services. Essential, having said that, it is important to say that the majority of people do not like to face taxes, even though today they are a necessity.
The not so encouraging news is that taxes are not going away, so the sooner you accept them, the easier it will be to accept them as part of the lives of Americans. However, the encouraging news is that Retirees from certain states may find that their retirement income is exempt from tax.
Although many states do not charge taxes on pensions and Social Security benefits, there is a small list of others that still take a cut from the beneficiaries:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- Virginia
- West Virginia
Whether the income comes from a job, a 401(k) plan, an individual retirement account (IRA), a pension or Social Security, those who are retired from these nine states will not have to worry about paying no state income tax, however, federal tax rules will continue to apply.
An important note for New Hampshire residents, interest and dividend payments over $2,400 per year are subject to tax, but this rule will not apply starting January 1, 2025.
States Where Retirement Income Is Tax-Exempt in the USA
Here is a list of states in the United States that do not tax retirement income:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
These states do not have a state income tax, which means they do not tax any form of income, including retirement income. Additionally, some states have specific exemptions for retirement income, such as pensions and Social Security benefits:
- Alabama (Exempts Social Security and defined benefit pensions)
- Hawaii (Exempts all retirement income except for private pensions)
- Illinois (Exempts Social Security and all retirement income)
- Mississippi (Exempts Social Security and qualified retirement income)
- Pennsylvania (Exempts Social Security and most retirement income)
Retirement income is considered income received from a 401(k) plan, an individual retirement account (IRA), or a pension, and the criteria for this exemption are variable, depending on the state; generally, you only need to have certain For example, in Iowa, you must be at least 55 years old to qualify for the exemption.
Just as in states without income tax, it is important to remember that federal tax rules still apply.
Social Security is a very important part of the finances of many retirees, so we cannot forget about it, the majority of retirees will not have to worry about the taxes that are applied to their Social Security benefits, but there are nine states that have not yet done so: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, West Virginia.
If you live in any of the states mentioned above, check your state’s specific rules regarding Social Security taxes, as they are variable and changing at any time.
Everyone Could Possibly Face Federal Social Security Taxes
You’ve probably noticed the trend, but it’s worth repeating, federal tax rules apply, regardless of individual state rules.
To determine how much tax you may be subject to, the IRS uses your “combined income,” which includes half of your annual Social Security benefits, your adjusted gross income, and any nontaxable interest you earn ( such as interest on Treasury bonds).
