Retirement planning is stressful enough. Figuring out where your hard-earned money goes once you retire shouldn’t add to that burden. Yet taxes on retirement income can quietly drain thousands of dollars annually from retirees who’ve worked their entire lives. Here’s the thing: not every state treats your Social Security checks and retirement savings the same way.
Some states welcome retirees with open arms and tax-friendly policies, while others take a hefty bite out of pension distributions and Social Security benefits. Let’s be real, where you decide to spend your golden years could make a massive difference in how far your retirement dollars stretch. The landscape is changing fast, with several states recently eliminating or reducing taxes on retirement income in response to growing pressure from aging populations. So let’s dive in and explore which states offer the best tax breaks for retirees.
States With No Income Tax at All
Nine states have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Think about what that means for a moment. If you live in any of these states, your entire retirement income stays in your pocket, free from state taxation.
These states also do not tax retirement income, including your 401(k), IRAs, pensions, and Social Security benefits. It’s a clean sweep. Whether you’re drawing from multiple income streams or relying solely on Social Security, you won’t face state tax bills. New Hampshire previously taxed interest and dividend income, but this tax was fully repealed as of January 1, 2025, making it a truly income-tax-free state now.
Four More States That Exempt All Retirement Income
Beyond the nine states without any income tax, four additional states have carved out complete exemptions for retirement income even though they maintain state income taxes on other earnings. These states include Illinois (which has a flat income tax of 4.95% but retirement income is exempt), Mississippi (which exempts retirement income but early withdrawals may not qualify), and Pennsylvania.
Iowa also joined this exclusive club. Seniors ages 55 and older are exempt from paying state income tax on their retirement income in Iowa. Illinois charges a flat state income tax of 4.95 percent, but all retirement income is exempt from paying the tax. This includes pension payments, as well as distributions from retirement plans such as 401(k)s and IRAs.
In Mississippi, the tax rate is set to be reduced gradually to 3% by 2030, with further decreases until the tax is eliminated entirely. The rate will fall to 4% in 2026. That’s pretty generous for retirees who still have other taxable income sources.
Michigan’s Phase-Out of Retirement Taxes
Michigan deserves special attention here because it’s currently making a major transition. Michigan has been phasing out its state income tax on pension income, with the change fully taking effect in the 2026 tax year. While the measure is often described as eliminating the state’s income tax on pensions, it also applies to most other forms of retirement income for Michiganders, including withdrawals from 401(k) plans, IRAs, annuities and certain deferred compensation plans. Legislation passed in 2023 gradually expanded the allowable deduction over several years.
This is honestly great news for Michigan residents who’ve been waiting for tax relief. By the time you file your 2026 returns in early 2027, most retirement income should be fully exempt from state taxation. The state recognized that taxing retirees was pushing people to move elsewhere, so they acted.
States That Don’t Tax Social Security Benefits
By 2026, retirees will owe no state tax on Social Security in 42 states plus the District of Columbia. That’s an impressive number when you consider that just a few years ago, many more states were still taxing these benefits. The trend has clearly shifted toward exempting Social Security from state taxation.
Kansas, Missouri, and Nebraska all passed laws to eliminate state tax on Social Security beginning with the 2024 tax year. These three states made significant changes recently. Three states, Kansas, Missouri, and Nebraska, have all passed laws to stop taxing Social Security benefits starting in the 2024 tax year. That meant that by 2025, retirees in those states did not owe any state tax on their benefits.
In Missouri, for instance, retirees are looking at a collective annual saving of around $309 million. Over in Nebraska, it’s about $17 million. That’s a lot of money that retirees get to keep in their pockets instead of it being drained away by state taxes.
West Virginia’s Complete Exemption Starting in 2026
West Virginia is another state undergoing a major transformation. West Virginia still taxes some Social Security in 2025, but fully exempts benefits starting with 2026 state returns, joining the non-taxing group. It’s been a gradual process, with the state slowly reducing the tax burden year by year.
Roughly 65% of Social Security benefits from this year will be exempt from state taxes, and then benefits will be fully exempt from state taxes for the 2026 tax year. This phased approach gave the state time to adjust its budget, but it’s finally happening. Retirees in West Virginia will soon enjoy complete freedom from state taxes on their Social Security income.
The Eight States That Still Tax Social Security in 2026
Only eight states are expected to tax at least some Social Security benefits in the 2026 tax year. That’s a pretty small group compared to the overwhelming majority that don’t tax these benefits. Those states are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont.
However, don’t write off these states completely. Most of them protect lower-income retirees while applying tax only once income rises above set thresholds. For example, Single filers earning up to $100,000 per year won’t have their Social Security benefits taxed at the state level. New Mexico won’t tax Social Security benefits for joint filers who earn up to $150,000 per year.
Colorado allows taxpayers 65 and older to deduct all their federally taxed Social Security. Younger retirees, those under age 65, get a smaller tax break in Colorado. The rules get complicated fast, which is why it’s crucial to understand your specific state’s exemptions.
Connecticut’s Expanding Exemptions
Connecticut has been working to become more retirement-friendly. For married filing separately and single filers, Social Security benefits are not taxed in Connecticut if adjusted gross income (AGI) is under $75,000. For married filing jointly and head of household filers, Social Security benefits are not taxed with AGI below $100,000.
If a taxpayer’s AGI is more than the Connecticut income threshold, no more than 25% of Social Security benefits are taxed. That cap provides substantial protection even for higher earners. The state recognized that completely taxing benefits was driving retirees away, so they implemented these progressive thresholds.
Colorado’s Age-Based Deductions
Beginning in 2025, individuals ages 55–64 were able to deduct all federally taxable Social Security income if their AGI was $75,000 or less for an individual and $95,000 or less for a couple filing jointly. Above those thresholds, $20,000 of federally taxable Social Security income could be excluded.
65 and older: No state taxation of federally taxable Social Security benefits. Honestly, that’s a pretty solid deal if you’re over 65, regardless of your income level. The younger retirees still get significant breaks if they stay under the income limits, which is better than many states offer.
States That Don’t Tax Pensions
Altogether, there are 15 states that don’t tax federal or private pension plans. Some of these are states that have no income tax at all; others have provisions in state law that make them states with no pension tax. The list includes all the no-income-tax states plus states like Alabama, Hawaii, Illinois, Iowa, Michigan (by 2026), Mississippi, and Pennsylvania.
Alabama can be a tax-friendly state for retirees, especially regarding pension income. Private-sector defined-benefit pensions, military retirement and … However, traditional IRA and 401(k) distributions are taxable. Retirees still get a tax break: The first $6,000 of retirement income for those 65 and older is tax-exempt. Alabama also doesn’t tax Social Security benefits. That’s another big plus for retirees in the state.
Each state handles pension taxation differently, so it’s worth checking the specific rules where you live or plan to retire.
Recent Tax Law Changes Favoring Retirees
The momentum toward more retirement-friendly tax policies has accelerated dramatically in recent years. Financial outlets like AARP, Money.com, and Kiplinger highlight these changes as part of a national trend in which states compete for retirees by relaxing or eliminating taxes on Social Security income. States are realizing that retirees bring economic benefits without requiring as many public services like schools.
The good news for seniors is that President Donald Trump’s new tax law introduced a temporary senior deduction, allowing taxpayers who are 65 or older to claim a $6,000 deduction for tax years 2025 to 2028. Joint filers can each claim the deduction, although the deduction is lowered by 6% for AGIs above $75,000 for single filers or $150,000 for joint filers. While this is not a specific Social Security deduction, the White House Council of Economic Advisors estimates that only 12% of seniors will be required to pay taxes on Social Security as a result of the deduction.
This federal change provides relief at the national level, separate from state policies.
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