What States Offer the Best Tax Treatment for Retirees?

I always felt that choosing my retirement spot would depend solely on factors such as physical environment, weather, cultural events etc, and felt taxes wouldn't make or break my decision. I still feel that way, but as I travel from a small town in Ohio on the Pennsylvania border to Jamestown New York a couple of times a month, I go through Erie, PA and shop for clothes (no tax on clothing in PA), and I decide which state has the lowest price to fill my car with gas on a given week as my journey takes me through Ohio, Pennsylvania and New York. So I have to admit I have started to pay more attention to taxes than what I thought I would, and maybe I should just stay put. It actually works out well for me.

Thought you might be interested in the recently passed tax relief legislation in MD that which will give retirees there a needed boost. It begins this July and expires in 5 years. I’m betting it will never expire.
According to the report it: "includes tax relief for retirees 65 and older making up to $100,000 in retirement income, and married couples making up to $150,000 in retirement income."
Maryland Announces Tax Relief for Many Retirees, Families, Businesses – NBC4 Washington (nbcwashington.com)
Editor's Comment: Thanks David, this is great news for Maryland seniors!

There's a wealth of information for each state at the Tax Foundation's website.
https://taxfoundation.org/

Well MD is losing retirees so they need to do something to keep them..Formally from MD I'd never retire there but I really do like Larry Hogan. .

One thing that always bother me about articles like this is that they are focused on income taxes. In many states (including those that have no income tax) property taxes are the biggest tax burden a retiree can face. For example, Illinois does not tax pension or IRA income, but if you live in the Chicago area property taxes are HUGE. Across the border in Indiana, you do pay taxes on IRA and pension income, but property taxes are usually 1/4 to 1/3 what they are in Illinois for a similar home. In most cases, the savings in property taxes FAR exceeds any tax paid on pensions or IRA distributions.
These articles need to start looking at the entire tax picture of a state, not just income taxes.

Another angle on the state tax situation is the amount of services a state or city provides for those taxes. Low tax states generally have less quality or availability for areas such as road/highway maintenance, schools, medical care, etc.

Excellent point by JD. Property taxes are high in Texas and Florida and this could well offset the cost of something taxed in another state that does not tax property or income. So many factors to consider, but certainly the cost of housing has to be included in any analysis.
Thanks for all the good comments.
Shelley from CA

JD’s point is very well taken. I have reviewed property taxes in southeast US golf communities over the last 15 years and they have not increased much, even as prices for homes have increased significantly. This will change as local municipalities need to build infrastructure to accommodate the increase in population. But for now, residents of high property tax states in the Northeast and some in the Midwest will find their property taxes cut by as much as 50% in the southeast states, and on comparable homes that cost much less than up north.

When the subject of tax treatment for retirees comes up, New York State is usually not mentioned. However, New York does not tax social security, nor does it tax federal, military or state pensions. And there is a state program for homeowners, called STAR, in which the state refunds a portion of your property taxes, circa 10%, every fall.
We relocated to New York in 2018 from California for personal reasons, but you can imagine the smile on our faces when we realized that none of our income, consisting of social security and federal pension, was taxed by the state. As others have rightly advised, taxes are only one of several factors in any decision about where to live, but New York State's tax situation for retirees may come as a surprise to many and should be part of the mix.

We all have Choices Sport's Fans!!

My daughter lives and works in Hawaii. The state income tax is very high, but the property taxes are very, very low for residents. Govt. gets their money in some way, so don't just concentrate on the income taxes, look at the whole tax picture!

Dave is right! Having moved from New England to SE Tenn, for work, in 2007 we were overjoyed to see our property tax a fraction of what it had been and no income tax UNTIL... we realized that sometimes - you get what you pay for. Taxes are not always a bad thing. They pay for the local infrastructure, the schools and services to the community. When taxes are low, the streets are not the best, the bridges suspect, the fire dept. is volunteer, you get septic instead of sewer and we even had to pay to "join" the local Library! We couldn't wait to get back to New England!
Make taxes a part of your planning but I don't recommend moving somewhere JUST for that reason.

Amen Sheldon, Dave and HEF. In most cases, we seem to get what we pay for in high-tax states. Retirees who chase low income taxes as a primary reason to relocate to a particular state make a potentially catastrophic mistake. We are all going to need healthcare at some point as we age, some sooner than later (some, because of pre-existing conditions, right away). According to the latest US News & World Report rankings, the top 5 states, in order, for access to healthcare are Hawaii, Massachusetts, Connecticut, Rhode Island and Vermont -- five states we associate with high income-tax rates. (Note: In rankings by overall tax rates at Wallethub.com, these five states are in the bottom half -- in other words, overall taxes are indeed high; and, yes, they are all small states so you are never too far from a hospital). But if you look at these same states by the category of "access to healthcare" AND "healthcare quality" (total healthcare ranking in parentheses), Hawaii ranks first in both categories (#1), Massachusetts 2nd & 14th (#2), Connecticut 3rd & 16th (#3), Rhode Island 4th & 32nd (#9), and Vermont 5th & 36th (#18). Conversely, the southern states that tend to be celebrated for their lack of an income tax rank as follows: Florida 41st & 18th (#25 overall), Texas 45th and 39th (#31), and Tennessee 37th & 23rd (#40). I don't believe it is coincidence that the high tax states also rank high on the list of quality of education. We retirees may think we are past the point of caring if your taxes support pubic education, but there is a direct through-line between quality education and quality of healthcare...As a resident of Connecticut who is about to file my state income-tax return, I am not complaining. Having three state-of-the-art hospitals within 20 minutes of our home, one just 12 minutes away, and the experience of great healthcare, is something money can buy.

I should have added in my above long-winded ode to high tax states, that the third category of health care that was a factor in overall ranking is "public health."

I agree with several of the other commenters that income taxes are not the whole story. Property taxes in most of the New England states, midwest, and Texas (no income tax) can be very high and much more punitive than income taxes. Also, property taxes, though regressive, are usually not that big a deal unless you are buying big ticket items like cars and boats.

I completely agree with all those who point out that state income tax is not a good basis for choosing a retirement location. My view is so strong that I haven't even read the article (quick scan, nothing new). When a definitive study is made including not only income tax but sales tax, property tax, gas tax and any other relevant form of taxation, then it will be worth my time. Meanwhile, I'm satisfied with the balance I've found in NC despite some who choose other states for sometimes curious reasons.