Are you concerned about finding the most tax-friendly states for your retirement? This page and this site have a host of resources to help you cut through the confusing state tax picture and make sure you choose a state that is truly tax-friendly.
The major taxes you need to be concerned about are property taxes, income taxes, sales taxes, and the taxation of pensions and social security. All of these factors need to be considered together, because a low tax rate in one area could be negated by another tax. You should also be concerned about differences within a state - sales, income, and property taxes can differ dramatically among cities in the same state.
Income Taxes. There are 7 states that have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Tennesee and New Hampshire only tax certain amounts of dividend and interest income.
Property Tax. For most retirees the property tax is the enemy. These taxes are on the worth of your home, and bear no relation to your income or ability to pay. In general many, but not all, southern states have low property taxes, whereas the old industrial states of the northeast and midewest tend to have high property taxes. Alabama has the lowest and New Jersey the highest property taxes. For example, the 2006 median property tax paid in Alabama was $328, in New Jersey it was $5,773 (of course the value of the homes was certainly higher in New Jersey). Florida has a homestead law which permits full-time residents over 65 to pay only a small annual increase in property tax each year. Other states or municipalities have various tax abatement or tax freeze programs for seniors, which can be valuable. We recommend you check with the state and municipal departments of taxation to find out more about the states and towns you are considering. The Tax Foundation has some good state property tax information.
Taxation of Pensions. For certain types of retirees taxation of pensions is a very important consideration when thinking about selecting a tax-friendly state. This is particularly true if you are going to receive a pension, especially a government or military one. Seven states exempt military and government pensions from state income taxation: Alabama, Hawaii, Kansas, Louisiana, Massachussets, Michigan, and New York. Other states - Delaware, Georgia, Minnesota, New Mexico, Utah, Virginia, and West Virginia - exempt all types of pensions to a certain degree. Fourteen states tax social security payments. Those states include Connecticut, Rhode Island, Vermont, etc.
Sales Tax. This tax is probably not that major a factor for the average retiree, at least compared to the amount you might pay for income and property taxes. There are big differences between states, with some charging none at all (Alaska, Delaware, Montana, New Hampshire, and Oregon) - while others have whopping tax rates. Some states exempt food and clothing, others do not. Certain municipalities, such as New York City, tack on their own sales tax.
As you can see there are some states that are more tax-friendly than others. But the answer for you might not be as simple as a list of the lowest tax states - you need to evaluate your situation against the tax situation in the states you are considering. For example, if you have a military pension, you might want to consider a state that won't tax it - all other things being equal. But if you have no income other than social security or an exempt pension, the the presence of an income tax is of no bearing to you.
In general the states with the lowest state tax burden are:
- Alabama
- Delaware
- Tennessee
- New Hampshire
- Alaska
Taxes are not always the whole story though. Consider Alaska, which has almost no taxes, but which for other reasons is one of the most expensive places you can live. Or the fact that your children and friends live in a high tax state - moving far away from them just to save money on taxes might make you miserable.
Find out more about taxation in the individual Topretirements state retirement guides
Get started by clicking on the state guides on the right. Or check out our reviews of the best retirement towns |
