James Brumley, The Motley Fool
6 min read
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The good news is that most states don’t tax any Social Security income.
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But larger pensions and retirement accounts are subject to at least some taxation.
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Everyone remains subject to the same federal income tax rules no matter where they live.
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The $23,760 Social Security bonus most retirees completely overlook ›
Can where you live affect how much of your retirement income you keep? As a matter of fact, it can. A small number of U.S. states are very tax-friendly to begin with, while the majority of states are quite accommodative to most retired people.
Here's what you need to know about each state's current treatment of retirees' income. Just be warned: once you're done reading, you just might be motivated to make a major move.
It was never intended to be anyone's sole source of retirement income, but Social Security is certainly an important one for plenty of people. The Center on Budget and Policy Priorities reports that the federal entitlement program is the single-biggest source of cash flow for the bulk of its retired beneficiaries, accounting for at least half of the income for 4 out of every 10 recipients.
Given that the program's average monthly benefit is now only $2,002 and caps out at a maximum of $5,108 per month, anyone who's highly dependent on Social Security income isn't exactly living lavishly. Fortunately, most states don't impose any income tax on these benefits. A total of 41 states don't tax Social Security income, in fact, in addition to Washington D.C.:
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Alabama
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Alaska
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Arizona
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Arkansas
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California
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Delaware
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Florida
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Georgia
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Hawaii
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Idaho
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Illinois
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Indiana
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Iowa
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Kansas
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Kentucky
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Louisiana
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Maine
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Maryland
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Massachusetts
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Michigan
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Mississippi
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Missouri
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Nebraska
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Nevada
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New Hampshire
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New Jersey
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New York
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North Carolina
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North Dakota
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Ohio
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Oklahoma
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Oregon
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Pennsylvania
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South Carolina
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South Dakota
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Tennessee
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Texas
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Virginia
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Washington
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Wisconsin
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Washington, D.C.
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Wyoming
It's worth mentioning that just because a state doesn't appear on the list above doesn't necessarily mean you'd owe state income taxes on any Social Security benefits you collect while living there. In several cases -- as is the case with federal taxation of your Social Security income -- some or even all of it can qualify as exempt.
You'll want to compare your retirement income to a particular state's tax thresholds to see how much (if any) income taxes you would actually owe there.
Tax-free Social Security benefits are obviously a win for retirees. But they're not the only source of income for most seniors even if they're the most important one for many of them. Plenty of retirees also have 401(k) accounts and traditional IRAs, and withdrawals from those accounts are counted as taxable income. Some are also still drawing from pensions, or will eventually do so. What about these sources of retirement income?
