Tax-Friendly States for Retirees
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Most and Least Tax-Friendly States for Retirees

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Tax-Friendly States for Retirees
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Retirement Ranked

Tax season takes a bigger bite out of retirement in some states than in others. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don't have state income tax, but retirees also need to consider taxes on sales, Social Security, retirement distributions, property, estates, and inheritance. That effective tax rate is what makes some states retirement havens and others a drain on retiree resources. Based on data from Kiplinger, here are the 10 best and worst states for retired taxpayers.

Related: 9 Common Tax Mistakes Retirees Make

Jason Notte contributed to this report.

10th Best: Arizona
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10th Best: Arizona

If you can stand the hot climate, Arizona is a notable choice for retirees. There’s no estate tax or inheritance tax in the Grand Canyon State, and Social Security benefits are exempt from state income taxes. As an added bonus, up to $2,500 in income from federal and Arizona government retirement plans is also exempt. The state income tax is 2.59% on taxable income of $26,500 or less for single filers or $53,000 for joint filers. For single filers with income over $159,000, or couples with combined income of more than $318,000 the tax rate jumps to 4.5%. The average property tax is just $754 per $100,000 of home value. For a $400,000 home, that would translate into an average annual property tax bill of around $3,014 per year. One more enticing fact, homeowners 65 and older can “freeze” the value of their property for real estate tax purposes for three years if they’ve lived in the home for at least two years and their annual income is below $37,008 for a single owner or $46,260 when there are multiple owners listed on the property deed.

9th Best: Georgia
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9th Best: Georgia

It's just north of Florida, but Georgia has become a retirement destination all its own. Social Security income is exempt from state taxes and so is up to $65,000 of most types of retirement income for those 65 and older. For married couples the threshold is $130,000. Retirement income includes pensions, annuities, interest, dividends, net income from rental property, capital gains, royalties, and the first $4,000 of earned income, such as wages. The average state and local sales tax is 7.33%, and state income tax ranges from 1% (on the first $750 of taxable income for single filers or $1,000 or less for joint filers) to 5.75% (on taxable income over $7,000 for single filers or $10,000 for joint filers), according to Kiplinger.

8th Best: Florida*
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8th Best: Florida

How is Florida not No.1? It has no state income tax, no estate tax, no inheritance tax, and a bunch of exemptions for people over 65. Retirees can get a property tax exemption of up to $50,000 from some city and county governments and/or an exemption equal to the assessed value of the property — if the property is worth $250,000 or less, the homeowner has lived there for at least 25 years, and household income does not exceed $30,174. Widows and widowers can claim an additional $500 exemption. The average property tax is $1,041 per $100,000 in home value, and state and local sales taxes average is 7.05%.

7th Best: Mississippi
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7th Best: Mississippi

Mississippi is something of a mixed bag on the tax front. It imposes a 3% state income tax on income of $2,000 to $5,000, while those with taxable income over $10,000 pay 5%. The average state and local sales tax exceeds 7% (and includes groceries), putting it second only to California. There’s also an annual personal property tax on motor vehicles. On the bright side, Mississippi has no estate or inheritance tax and exempts Social Security benefits from state income tax. Notably, the state also does not tax withdrawals from IRAs and 401(k) plans, income from public and private pensions, and other types of qualified retirement income.

6th Best: Tennessee
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6th Best: Tennessee

Life in the Volunteer State looks pretty good for retirees. There’s no estate or inheritance tax, and there are no taxes on Social Security benefits, pensions, or distributions from retirement plans. There’s also no state income tax in Tennessee. Instead, there’s a 2% tax on interest and dividends. But even here retirees come out ahead — anyone 65 or older who has an annual income of $37,000 or less is exempt from that 2% tax. The same rule applies to joint filers with an income of $68,000 or less. What’s more, the tax is being phased out at 1% per year, which means that by 2021, it will be completely gone. Property taxes are also relatively painless. The state charges $768 per $100,000 in home value. For a $400,000 home that would be about $3,072 per year. To make the picture even rosier, Tennessee also offers tax relief programs and reimbursements to income-eligible seniors. If there’s one drawback here, it’s the state’s sales tax, which is 9.74% — making it the highest in the country.

5th Best: South Carolina
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5th Best: South Carolina

The Southern hospitality is real in South Carolina, particularly if you’re a retiree. There is no estate or inheritance tax here, and Social Security benefits are totally exempt from taxes. To further enhance the state’s charm, taxpayers 65 or older are allowed to exclude up to $10,000 in retirement income from taxes. Those under 65 can exclude as much as $3,000. And still there’s more. Seniors who are single filers are also allowed to deduct $15,000 from other taxable income. For joint filers the limit is $30,000. Turning to property taxes, these too are quite favorable. The average property tax rate is $601 per $100,000 in home value. For a $400,000 home the annual tax bill would be just $2,404. That puts the state’s property taxes at the fourth lowest in the country. Additionally, seniors are allowed to claim a homestead exemption for the first $50,000 in fair market value on their property. There is one small drawback in the state, and that’s the sales tax. The statewide sales tax is 6% and local governments can tack on an additional 3% if they choose, making the average combined tax about 7.46%.

4th Best: Alabama
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4th Best: Alabama

Also known as the Camellia State, Alabama offers low taxes for retirees. The state income tax is 2% on taxable income of $500 or less for single filers and $1,000 or less for joint filers. The vast majority of residents pay 5%, which is the rate for those who have a taxable income over $3,000 for single filers and over $6,000 for joint tax returns. There’s no estate or inheritance tax in the state, and Social Security benefits and payments from traditional pension plans, such as defined-benefit plans, are exempt from taxes as well. Property taxes are also incredibly favorable here at just $432 per $100,000 in home value. For a $400,000 home, that would be an annual tax bill of about $1,729 per year. Translation: That’s the second lowest property tax in the entire country. Still there’s more: All homeowners 65 or older are entirely exempt from state property taxes. The one downside in Alabama is its sales taxes. The average is 9.16%. That’s the fifth highest in the nation.

3rd Best: Delaware
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3rd Best: Delaware

Another retiree haven, Delaware has a lot going for it, including no sales taxes (one of only a few states in the country with this perk). There are also no estate or inheritance taxes. The average property tax in Delaware is $604 per $100,000 in home value. For a $400,000 home that’s about $2,414 annually, making it the sixth lowest in the United States. In addition, some seniors in the state qualify for a school property tax credit of as much as $400. In order to qualify for this credit, you may have to live in the state for at least 10 years. The one drawback in Delaware is its income taxes. The majority of people, those who have taxable income of more than $60,000 annually, pay 6.6%. For those with annual taxable income of $2,000 to $5,000 the rate is 2.2%. On the upside, residents 60 and older can exclude as much as $12,500 in pension and other retirement income. This includes dividends and interest, capital gains, IRA and 401k distributions. Finally, Social Security benefits are also exempt from taxes.

2nd Best: Nevada
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2nd Best: Nevada

No income tax, no estate tax, and no inheritance tax mean your retirement savings go a long way here. But the average state and local sales tax here is 8.14%. Groceries are exempt. Finally, the average property tax is $693 per $100,000 in home value. The tax bill on a $400,000 home is about $2,772 per year, well below the national average. On the downside, the state does not provide any tax breaks for its senior residents.

Best: Wyoming
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Best: Wyoming

This state has fewer residents than many U.S. cities, but thanks to oil and mineral revenues, Wyoming doesn't have to charge a state income tax, estate tax, or inheritance tax, meaning retirees here have the lowest overall state and local tax burden in the country. The average state and local sales tax is 5.32%, but seniors who meet income requirements can get refunds of $800 to $900. Meanwhile, the average property tax is $635 per $100,000 in home value. For a $400,000 home in the state, the average annual tax bill is a mere $2,540. That’s the ninth lowest tax rate in the country.

10th Worst: New York
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10th Worst: New York

New York is notorious for being a pricey place to live and that includes during retirement. The average property tax here is a steep $1,812 per $100,000 in home value. That amounts to an annual property tax bill of about $7,246 on a $400,000 home, which is the ninth highest tax rate in the country. It’s worth noting, however, that there are some tax breaks available for seniors. Local governments and public-school districts, for instance, are able to reduce the assessed value of a senior’s home by 50%. To earn this break, the homeowner must be at least 65 and meet some income limits. There are also some tax breaks available for those whose annual household income is $86,300 or less. Yet another drawback in the state, however, is the sales and local tax, which comes in at the 10th highest in the country at 8.49%. One positive note here, food and drugs are excluded from this tax. Finally, income taxes in New York are not as bad as might be expected. Social Security benefits, federal and New York government pensions, and military retirement pay are all exempt from taxes. But it’s worth noting that anything over $20,000 drawn from a private retirement plan will be taxed, and this includes pensions, IRAs and 401ks. There are also estate taxes in New York, though there’s no inheritance tax.

9th Worst: Illinois
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9th Worst: Illinois

Illinois isn’t all bad news for retirees. For instance, Social Security benefits and income from most retirement plans are not taxed. What’s more, the state’s income tax, at a flat 4.95%, is quite low compared to the rest of the nation. However, the property taxes in Illinois are no joke. The rate is $2,408 per $100,000 in home value. That’s the second steepest property tax in the country, and it translates into a whopping annual tax bill of about $9,634 for a $400,000 home. Seniors are able to apply for a homestead exemption of as much as $5,000 and its $8,000 in Cook County. There’s also an option to “freeze” your home’s assessed value if you earn $65,000 or less annually. Another bonus, there’s a tax deferral program available of up to $5,000, as well. Moving on to sales tax rates, they, too, are quite high in Illinois. In fact, they’re the seventh highest in the country at 8.78%. (In some places around the state the rate is as high as 11%.) Finally, there’s also an estate tax to pay here, which applies to estates valued at $4 million or more.

8th Worst: New Jersey
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8th Worst: New Jersey

Another state that retirees may want to think twice about settling in, New Jersey has the highest property taxes in the entire nation. It is $2,530 per $100,000 in home value. For a $400,000 home that’s an annual tax bill of (hold your breath) some $10,120. Now for some good news: The state offers a program that reimburses eligible seniors for property tax increases. However, in order to qualify you not only need to be at least 65, but you must also have lived in the state for at least a decade and have income below specific limits. The 2019 limit was $91,505 or less. There’s also a $250 property tax deduction for seniors who have annual income of $10,000 or less. As for income taxes here, they are not quite so significant. Married seniors filing a joint return are allowed to exclude up to $80,000 of income from a pension, annuity, IRA, or other retirement plan if their New Jersey income is $100,000 or less. Single taxpayers and married taxpayers filing a separate return are permitted to exclude as much as $60,000 and $40,000. As of 2020, the maximum exemption increases to $100,000 for joint filers, $75,000 for single filers, and $50,000 for separate filers. Also, noteworthy, Social Security benefits are not taxed in New Jersey. One more positive note, sales taxes are also not steep here. The state’s sales tax rate is about 6.6%. And while there is no estate tax here, there is still an inheritance tax.

7th Worst: Rhode Island
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7th Worst: Rhode Island

The tiny state of Rhode Island makes the least-friendly list thanks in large part to its income and property taxes, which are above average. Let’s start with income taxes. Seniors pay taxes on Social Security benefits if their federal adjusted gross income is more than $85,150 for a single filer or $106,400 for a joint return. Seniors at the upper end of the income spectrum also do not qualify for a state income tax exemption of as much as $15,000 for cash taken from private, government or military retirement plans. Those who earn up to $83,450 as a single filer or $104,350 for joint filers, are able to qualify for this exemption. As for property taxes, Rhode Island has the 11th highest in the nation. The average property tax is $1,723 per $100,000 in home value. For a $400,000 home that’s about $6,892 annually. However, homeowners 65 and older who earn $30,000 or less qualify for a state tax credit. There’s also a steep estate tax in Rhode Island, as high as 16%. The tax hits estates worth $1.561 million or more. That’s noteworthy because it means Rhode Island is one of just three states in the country that taxes estates worth less than $2 million.

6th Worst: Vermont
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6th Worst: Vermont

Taxes in the Green Mountain state are not cheap. In fact, the state taxes all or part of Social Security benefits for single residents who have a federal adjusted gross income of more than $45,000 for a single filer or more than $60,000 for married couples filing a joint return. Property taxes are $1,908 per $100,000 in home value. That means the property tax bill annually on a $400,000 home would be about $7,634, which is the seventh highest in the United States. The good news is that homeowners 65 and older may qualify for a tax credit worth 24% of the Federal Elderly and Permanently Disabled Tax Credit. To qualify, household income must not exceed a certain level. Vermont’s state and local sales tax comes in at 6.22%, which is below the U.S. average. In addition, food for home consumption, clothing, and nonprescription drugs are all exempt from the tax. If you like to dine out, however, you’ll pay the price here. There’s a 9% tax on prepared foods, restaurant meals and lodging. The estate tax in Vermont is 16% for estates that exceed $2.75 million.

5th Worst: Minnesota
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5th Worst: Minnesota

There are very few tax benefits for retiring to Minnesota. Social Security income is taxed here at the same level as it is on federal tax returns. But the state allows for deducting up to $5,150 for joint filers; up to $4,020 for single filers; and up to $2,575 for married taxpayers who submit separate tax returns. Another drawback in Minnesota, pensions are also taxable (unless they're from the military) as are distributions from IRAs and 401(k) plans. If there is one benefit here it is that there’s a special income tax deduction for certain senior citizens. Taxpayers 65 and older can deduct as much as $9,600 if they are single filers and $12,000 for joint filers. However, under the deduction's phased-out rules, seniors who earn in excess of $33,700 (for single filers) or $42,000 (for those who are joint filers) are barred from claiming this tax break. The average property tax rate is $1,224 per $100,000 in home value, which is above the national average. There’s also an estate tax. Estates valued at more than $2.7 million are subject to the maximum tax rate of 16%.

4th Worst: Wisconsin
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4th Worst: Wisconsin

Though Wisconsin shuns estate and inheritance taxes, its average sales tax is 5.44% and state income tax ranges from 3.86% (on up to $11,450 of taxable income for singles or up to $15,270 for married couples) to 7.65% (on taxable income over $252,150 for singles or over $336,200 for married couples). Median property taxes are the sixth highest, with a tax rate of $1,924 per $100,000 in home value. For a $400,000 home, that’s about $7695 per year. Social Security benefits are exempt from taxes, but the majority of income from pensions, annuities, and distributions from IRAs and 401(k) plans are taxable. Retirees 65 and older, however, can subtract as much as $5,000 of retirement income from Wisconsin taxable income if the filer’s federal adjusted gross income is less than $15,000 or $30,00 for a joint return. One last note about Wisconsin, sales taxes are quite low. In fact, they are the eighth lowest in the country.

3rd Worst: Kansas
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3rd Worst: Kansas

The maximum income tax in Kansas of 5.7% applies to anyone making more than $30,000 or any couple making more than $60,000. Pensions and retirement distributions are taxed fully, as is Social Security for individuals making more than $75,000. Though military, civil service, and in-state public pensions are exempt from state income taxes. The state and local sales tax is 8.68%. The property tax is $1,491 per $100,000 in home value. For a $400,000 home that’s about $5,963 annually, making it the 15th highest in the U.S. But those who are 55 and older and have an annual income of $35,00 or less are eligible for a property tax refund of up to $700. For homeowners 65 and older with a household income of $19,800 or less and a home value of $350,000 or less are eligible for a refund of up to 75% of property taxes paid. There is no estate or inheritance tax in Kansas.

2nd Worst: Connecticut
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2nd Worst: Connecticut

Retirees may want to steer entirely clear of Connecticut. For those residents who have federal adjusted gross income of more than $75,000 ($100,000 for joint filers), 25% of Social Security benefits that are taxed at the federal level are also taxed by the state of Connecticut. Though Social Security payments are exempt for taxpayers below that threshold of income. As of 2019, Connecticut added at least one small perk for seniors — 14% of income from a pension or annuity is exempt for taxpayers earning less than $75,000 in federal adjusted gross income, or less than $100,000 for joint filers. The property tax in Connecticut is $2,114 per $100,000 in home value. That’s the fourth highest property taxes in the country. For a $400,000 home, the annual tax bill is a stinging $8,456. The state does offer property tax credits to homeowners who are 65 and older and meet income restrictions. Yes, there's an estate tax here, on estates valued at $3.6 million or more at progressive rates that span from 7.2% to 12%. And one last drawback to be aware of here. Connecticut is the only state in the country that imposes a gift tax, which applies to both real and tangible personal property in Connecticut. This tax also applies to intangible personal property anywhere for permanent residents.

Worst: Nebraska
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Worst: Nebraska

Nebraska is no place for retirees. It taxes some Social Security benefits and most other forms of retirement income, such as IRA withdrawals, 401(k) funds, and public and private pensions. As for Social Security, residents can subtract Social Security income that’s included in federal adjusted gross income if their income is $58,000 or less for a joint filer or $43,000 for single returns. On the other hand, if the senior’s income is more than that threshold, Social Security benefits are taxed by the state at the same level as they are federally. The state income tax, meanwhile, is 2.46% on taxable income of $3,230 or less for single returns or joint returns of $6,440 or less. For single filers with taxable income over $31,160 or joint returns of more than $62,320 the rate is 6.84%. Property taxes in the Cornhusker State are $1,855 per $100,000 in home value. That means the tax bill for a $400,000 home is about $7,421 per year, which is the eighth-highest property tax in the nation. The sales tax here is 5.5%, but the tax does not apply to food and prescription drugs. Because local jurisdictions can add an additional 2% to the rate, the average combined state and local tax is closer to 6.88%.