Forty-one states don't tax Social Security income.
Thirty-seven states don't tax most military retirement pay.
Sixteen states exempt pension income from state taxes.
Nine states have no income tax. This count includes Washington, which taxes high earners' capital gains only.
After a lifetime of contributing to Social Security, building up a retirement plan, or earning a pension, you may be bracing for a big tax hit in retirement. Now you're ready to punch your last time cardand your state has its hand out for some tax dollars as well.
Or does it? While federal taxes are unavoidable, some states are kinder than others when it comes to taxing retirement income. And fortunately, most states don't tax social security. The only ones that do are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
But several states go beyond Social Security and let you avoid state tax on various types of income.
Arkansas offers retirees a break by exempting up to $6,000 per year from public and private employer-sponsored pension plans and traditional IRA distributions received after the age of 59½ or because of death or disability. It also doesn't tax Social Security income or tax military retirement pay at all. Plus, Arkansas imposes no estate or inheritance tax, so your heirs won't face additional tax burdens.
Illinois exempts pension income, 401(k) and IRA withdrawals, Social Security benefits, and military retirement pay from state taxes. However, Illinois does tax other investment earnings. The state also imposes estate and inheritance taxes.
Iowa recently updated its tax laws to be more retiree-friendly. As of 2023, the state no longer taxes pension, annuity, or IRA income for residents over age 55.
Then in 2025, the state transitioned to a flat tax system, with a rate of 3.8%. It also eliminated its inheritance tax.
Mississippi spares retirement plan distributions, pension income, annuities, Social Security income, and military retirement pay from state taxes. Early distributions from retirement plans generally don't qualify for exempt status. This state doesn't have an estate or inheritance tax, either.
New Hampshire doesn't tax Social Security or pension income. This state doesn't have an income tax on earned wages and most distributions count as income so they're exempt.
Notably, New Hampshire repealed its tax on interest and dividends as of Jan. 1, 2025, making it even more attractive for retirees. Estate and inheritance taxes are also absent in New Hampshire.
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