In the U.S., states have made efforts to relieve social security and other retirement benefit payments from the taxing regime of the state-by-state. This proves beneficial for retirees by allowing them to cover higher expenses from their limited income without worrying about the state income tax.
For the retiree planning their financial future, the knowledge of which states have a tax exemption for Social Security and retirement income might play a role in deciding where to live. Here are the states that have no taxes on retirement income, such as Social Security benefits.
States that offer full tax exemptions for Social Security
Alabama to Hawaii:
- Alabama: While Alabama has a state income tax, it exempts Social Security benefits, making retirement income tax-free.
- Alaska: This state does not impose state income or sales taxes. Retirees also benefit from Alaska’s Permanent Fund Dividend.
- Arizona: Social Security benefits are exempt from state taxes, with a modest 5.6% sales tax.
- Arkansas: Social Security benefits are untaxed, with the state income tax rate reduced to 3.9%.
- California: Despite high income tax rates, Social Security benefits are exempt.
- Delaware: Exempts Social Security payments and has income tax rates ranging from 0% to 6.6%.
- Hawaii: Social Security benefits are not taxed, though income tax rates range from 1.4% to 11%.
Low-tax states with full Social Security exemptions
- Idaho: Exempts Social Security benefits while maintaining a flat 5.8% state income tax rate.
- Illinois: Does not tax Social Security benefits, with a flat 4.95% income tax rate.
- Indiana: Offers full exemption for Social Security, with a state income tax rate of 3.05%.
- Kansas: Phased out taxes on Social Security in 2024, aiming for a 3.99% flat income tax by 2027.
- Louisiana: Social Security benefits are tax-exempt, with rates ranging from 1.85% to 4.25%.
- Nevada: Has no state income tax, leaving Social Security benefits entirely untaxed.
- Texas: Like Nevada, Texas imposes no state income tax, ensuring retirees keep more of their Social Security income.
States with future tax changes
Some states are undergoing reforms to eliminate taxes on Social Security benefits entirely.
- Missouri: Ended taxation on Social Security benefits in 2024.
- Nebraska: Accelerated its plan to eliminate taxes on Social Security by 2025.
- Virginia: Continues to exempt Social Security benefits, with income tax rates between 2% and 5.75%.
- West Virginia: Will phase out Social Security benefit taxes completely by 2027.
Read this now: IRS Form 1040-ES in 2024: what is it, instructions, and how to fill out the Estimated Tax for Individuals
States without any income tax
Florida: No state income tax ensures Social Security benefits remain untaxed.
- South Dakota: Similar to Florida, retirees enjoy no state income tax burdens.
- Tennessee: Offers a tax-free income environment for Social Security recipients.
- Washington: Like other no-income-tax states, Social Security benefits are untaxed.
Final thoughts
Understanding the state tax policies for retirees might be one of the most important long-term impacts on a financial plan. Whether it is tax-free Social Security benefits or there is no income tax, these are 42 states that would give big relief to retirement income. A move to one of these states could significantly change how far your retirement savings stretch.
To know more about the changes in Social Security benefits and other IRS payment tips, make sure to follow expert advice on timely articles.
