States That Don’t Tax Retirement Income Explained
- The Nine States With No Income Tax
- States That Don't Tax Pensions (But Do Tax Other Income)
- Which States Still Tax Social Security Benefits?
- States That Don't Tax Military Retirement
- What Returning Expats Need to Know About State Taxes
- How to Establish Residency in a Tax-Friendly State
- Comparing the Full Tax Picture
- Frequently Asked Questions
- Need Help With Retirement Tax Planning?
- Related Resources
Nine U.S. states impose zero income tax on all retirement income, including pensions, 401(k) distributions, IRA withdrawals, and Social Security benefits: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. According to the Tax Foundation, an additional 12+ states exempt pension income specifically, even though they tax other forms of income.
States that don’t tax any retirement income include:
- No income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
- No tax on pensions or retirement distributions: Illinois, Mississippi, Pennsylvania (among others)
- No tax on Social Security: 42 states plus D.C. as of 2026 (only 8 states still tax Social Security in some form)
Choosing a Tax-Friendly State for Retirement? Start Here
Below is how each category works, which states offer the best overall tax picture for retirees, and what returning expats need to know about establishing residency.
The Nine States With No Income Tax
These states don’t tax any income, period. That means that pensions, 401(k) distributions, IRA withdrawals, Social Security benefits, investment income, and wages are all state tax-free.
| State | Key Retiree Benefits | Trade-offs to Consider |
|---|---|---|
| Alaska | No income tax, Permanent Fund Dividend ($1,000-$2,000/year for residents) | Higher cost of living (~28% above national average), remote location |
| Florida | No income tax, no inheritance tax, homestead property tax exemptions for seniors | Property taxes vary by county; higher insurance costs in coastal areas |
| Nevada | No income tax, no inheritance tax, moderate property taxes | Higher sales tax (~8.23% combined average), desert climate |
| New Hampshire | No income tax (interest/dividends tax fully repealed as of January 2025), no sales tax | Higher property taxes (~1.4% effective rate), limited urban centers |
| South Dakota | No income tax, low property taxes, low overall tax burden | Cold winters, limited metropolitan areas |
| Tennessee | No income tax (investment income tax eliminated in 2021), low property taxes | Higher combined sales tax (~9.55% average) |
| Texas | No income tax, no inheritance tax, senior property tax exemptions at age 65 | Higher property taxes (~1.6% effective rate), varies significantly by county |
| Washington | No income tax, strong healthcare infrastructure | 7% tax on long-term capital gains over $270,000; higher cost of living in major cities |
| Wyoming | No income tax, low property taxes, one of the lowest overall tax burdens nationally | Small population, limited healthcare options in rural areas |
Washington note: While Washington has no income tax on wages, pensions, or retirement distributions, it does impose a 7% tax on long-term capital gains above $270,000 (as of 2024). This is relevant for retirees with significant investment portfolios.
States That Don’t Tax Pensions (But Do Tax Other Income)
Several states maintain income taxes on wages and other sources, but fully exempt qualified pension and retirement account distributions. This is especially valuable for retirees whose income comes primarily from pensions and 401(k)/IRA withdrawals.
Illinois
Illinois charges a 4.95% flat income tax, but it exempts all qualified pension income, 401(k) distributions, IRA withdrawals, and Social Security benefits from state tax. For retirees with pension-heavy income, Illinois can function as a zero-tax state.
Pennsylvania
Pennsylvania has a 3.07% flat income tax, but it exempts all pension and retirement account distributions (including 401(k), IRA, and qualified pension plan distributions) from state tax. Social Security is also exempt. Pennsylvania additionally offers senior property tax rebates.
Mississippi
Mississippi exempts qualified pension income and Social Security benefits, and its cost of living is roughly 15% below the national average. The state’s income tax rate drops to 4.4% (on taxable income exceeding $10,000) for 2025.
Other Notable Pension-Friendly States
- Michigan: Full pension exemption for those born before 1946; partial exemptions for younger retirees, with the rules varying based on birth year
- New York: Exempts up to $20,000 per person in pension and retirement income (applies to government pensions, qualified private pensions, and some other plans)
- Alabama: Exempts defined benefit pension income from state tax; Social Security is also exempt
- Hawaii: Exempts employer-funded pension distributions (not employee contributions)
Which States Still Tax Social Security Benefits?
As of the 2026 tax year, only 8 states still tax Social Security benefits in some form. Most of these provide income-based exemptions that shield lower- and middle-income retirees:
| State | How Social Security Is Taxed |
|---|---|
| Colorado | Full exemption for taxpayers 65+; partial exemptions for ages 55-64 based on income |
| Connecticut | Exempt if AGI is under $75,000 (single) or $100,000 (joint); above that, no more than 25% of benefits are taxed |
| Minnesota | Exempt below AGI of $84,490 (single) or $108,320 (joint); phases out above those thresholds |
| Montana | Follows federal taxation rules; taxpayers 65+ can subtract $5,500 from taxable income |
| New Mexico | Exempt if income is under $100,000 (single) or $150,000 (joint) |
| Rhode Island | Exempt for retirees who’ve reached full retirement age and meet income requirements |
| Utah | Offers Social Security tax credit that offsets most or all state tax for moderate-income retirees; phases out at higher income levels |
| Vermont | Exempt if AGI is under $55,000 (single) or $70,000 (joint); partial exemptions up to $64,999/$79,999 |
Recent changes: West Virginia fully eliminated its Social Security tax starting with the 2026 tax year. Kansas, Missouri, and Nebraska all eliminated their Social Security taxes beginning with the 2024 tax year. This trend is expected to continue, with several of the remaining 8 states considering legislation to reduce or eliminate their Social Security taxes.
All 42 other states, plus the District of Columbia, do not tax Social Security at all.
States That Don’t Tax Military Retirement
All nine no-income-tax states automatically exempt military retirement pay. Beyond those, many states with income taxes provide full or partial exemptions specifically for military retirement:
Full military retirement exemptions (in addition to the nine no-tax states): Alabama, Arkansas, Connecticut, Hawaii, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, West Virginia, and Wisconsin.
The list of states offering military retirement tax exemptions has grown significantly in recent years. If you’re a military retiree, check your specific state’s current rules, as several states have expanded their exemptions since 2024.
What Returning Expats Need to Know About State Taxes
If you’ve been living abroad and are returning to the U.S. for retirement, the state you choose to establish residency in has a direct impact on your tax picture going forward. This decision is especially important for expats who are unwinding FEIE elections, transitioning from foreign pensions, or re-entering the U.S. tax system after years abroad.
Choosing a State Before You Return
If you haven’t yet established a U.S. domicile, you have the opportunity to pick your state strategically. Moving to a no-income-tax state before you begin receiving pension distributions or retirement account withdrawals means those distributions are never subject to state income tax.
For expats who maintained residency in a sticky state (California, New York, Virginia, etc.) while abroad, the return move is also a chance to break that residency cleanly and re-establish in a more tax-friendly state.
If You Still Have Ties to a High-Tax State
Some expats maintain property, voter registration, or a driver’s license in a high-tax state while living abroad. If that state considered you a resident during your time overseas, returning to a different state requires careful documentation to avoid continued taxation by both your former state and your new one.
Key steps when changing state residency:
- Get a driver’s license in your new state within 30 days
- Register to vote in your new state
- Update your bank accounts, insurance policies, and mailing address
- File a part-year return in your former state for the year of your move
- Limit visits and financial ties to your former state going forward
High-tax states like New York and California are known to audit departing residents. Maintain detailed records of your move date, establish clear ties to your new state, and consider professional guidance to ensure the transition is handled properly.
Foreign Pensions and State Tax
If you’ve earned a foreign pension while working abroad, the state where you establish residency will determine whether that pension is taxed at the state level. Foreign pension income is generally treated the same as domestic pension income for state tax purposes.
In no-income-tax states, foreign pensions are state-tax-free. In states like Illinois and Pennsylvania that exempt pension income, foreign pensions may also qualify for exemption, though the rules vary. Check with a tax professional to confirm how your specific state treats foreign pension distributions.
FEIE to FTC Transition for Retirees
Expats who used the Foreign Earned Income Exclusion while working abroad and are now transitioning to retirement income should note that the FEIE only applies to earned income (wages, salary, self-employment). It does not apply to pension distributions, Social Security, or investment income.
Returning expats who previously relied on the FEIE will need a new tax strategy for retirement. The Foreign Tax Credit may apply to foreign pension income if foreign taxes are still being paid, and choosing the right state of residency can eliminate the state tax layer entirely. For a comparison of approaches, see FEIE vs. FTC.
How to Establish Residency in a Tax-Friendly State
Establishing residency is about more than buying a house. States look at intent and the totality of your ties. To make your new domicile defensible:
- Get a driver’s license and voter registration in your new state promptly
- Open bank accounts and update your primary address on all financial accounts
- File a homestead exemption if your new state offers one (Florida’s is especially valuable for property tax reduction)
- Spend the majority of your time in your new state, especially in the first year
- File a part-year or non-resident return in your former state for the transition year
- Keep a log of days spent in each state in case of an audit
Common Mistakes
- Incomplete residency establishment. Buying property alone isn’t enough. Without a driver’s license, voter registration, and updated financial accounts, a former state can argue you never truly left.
- Maintaining too many ties to your old state. If you keep a home, a doctor, a club membership, and a bank account in New York while claiming Florida residency, New York may still consider you a resident.
- Poor timing. If possible, time your move early in the tax year to avoid complications from partial-year residency in multiple states.
- Overlooking local taxes. Some municipalities impose their own income taxes. Research the total tax picture, not just the state-level rate.
Comparing the Full Tax Picture
State income tax is only one factor. Retirees should also consider property taxes, sales taxes, estate/inheritance taxes, and the cost of living when evaluating a move.
| Factor | Best Options | Watch Out For |
|---|---|---|
| No income tax | AK, FL, NV, NH, SD, TN, TX, WA, WY | Higher property taxes (TX, NH) or sales taxes (TN, WA) |
| No pension tax | IL, MS, PA (plus all 9 no-tax states) | Other income may still be taxed |
| No Social Security tax | 42 states + D.C. | Only 8 states still tax SS (most exempt lower-income retirees) |
| Low cost of living | TN, SD, WY, MS, AL | Fewer healthcare options in rural areas |
| No estate/inheritance tax | FL, TX, NV, WY, and most no-tax states | 12 states + D.C. impose estate taxes; 6 states have inheritance taxes |
| Strong healthcare | FL (large senior population), TX (major medical centers), WA (excellent systems) | Rural areas in AK, WY, SD may have limited access |
Medicare works in all 50 states, but Medicare Advantage plans have network limitations that vary by location. Research the availability of research plans in your target state before relocating.
Frequently Asked Questions
If you plan to retire overseas, establishing domicile in a no-income-tax state before your move can significantly simplify your U.S. tax situation. You won’t have a state filing obligation on retirement income (pensions, Social Security, 401(k) distributions) while you’re abroad. Expats who remain domiciled in high-tax states may still owe state taxes on this income even after leaving the country. See our state tax guide for expats for details.
It depends on your state of residency. No-income-tax states won’t tax it. States that exempt pension income (like Illinois and Pennsylvania) may also exempt foreign pensions, but the rules vary. The federal treatment of your foreign pension (which depends on the U.S. tax treaty with the country where the pension was earned) is a separate question from the state treatment. Work with an expat tax professional to understand both layers.
If your former state considers you a resident (because you never formally severed ties), you may have unfiled state returns. The consequences depend on the state and whether you owe any tax. Some states have voluntary disclosure programs for delinquent filers. Before filing multiple years of back returns on your own, consult a tax professional who can evaluate whether you qualify for penalty relief and what your actual liability is. Greenback’s Streamlined Filing Package covers both federal and state catch-up filing.
No. You can only have one domicile at a time for tax purposes. However, you can be a “statutory resident” of a state where you spend more than 183 days (even without domicile), which may trigger a filing obligation. This is common for retirees who split time between a northern home and a southern home. Track your days carefully and consult a tax professional if you spend significant time in more than one state.
There’s no single answer. The best state depends on your income sources, health needs, family proximity, climate preferences, and overall cost of living. Florida and Texas are popular for their zero-income tax and strong healthcare infrastructure. Tennessee and South Dakota offer low overall tax burdens with an affordable cost of living. Pennsylvania and Illinois are worth considering if your income is primarily from pensions, as they offer full pension exemptions despite having income taxes.
Need Help With Retirement Tax Planning?
Choosing the right state can save you thousands in annual taxes on your retirement income. Whether you’re planning a return to the U.S. after years abroad, transitioning from a foreign pension, or simply looking for the most tax-efficient place to retire domestically, proper planning ensures you keep more of what you’ve earned.
If you’re ready to be matched with a Greenback accountant, get started today. Have questions about the process or next steps? Contact us, and one of our Customer Champions will be happy to help.
Make Your Retirement Tax-Smart
This article is for informational purposes only and should not be considered tax advice. Individual circumstances vary, and you should consult a qualified tax professional for advice specific to your situation.
Related Resources
- State Tax Obligations for Expats
- State Residency While Living Abroad
- Moving Your Retirement Account Overseas
- Do Expats Get Social Security Benefits?
- Totalization Agreements and Tax Treaties
- Foreign Earned Income Exclusion
- FEIE vs. FTC: Which Is Right for You?
- Foreign Tax Credit
- Streamlined Filing Procedures
- U.S. Expat Taxes: The Complete Guide
