States that do not tax Social Security Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington. States vary widely in how they tax retirement income, so location is an important consideration in financial planning for retirement. Some states don't impose any type of retirement income on income statements, while others tax IRA and 401 (k) distributions, pension payments, and even social security payments, such as ordinary income. However, income taxes are only part of the story, as some states with low or no income taxes have high taxes on property, sales, and other taxes.
Consider working with a financial advisor when you are planning for retirement to ensure that you avoid unnecessary taxes. If you're about to retire or are already retired, it's essential that you understand your state's tax laws. However, most of the other states in the region, Alabama, Arkansas, Delaware, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, and Virginia, also have general Social Security tax exemption. Some of the exemptions are generous enough that many retirees in those states don't pay any income tax.
Knowing which states tax Social Security locally means you can keep that in mind when planning where you want to spend your retirement. Meanwhile, Illinois, Indiana, Iowa, Michigan, Ohio and Wisconsin have full state tax protection for those who receive Social Security benefits. So, it doesn't matter how much money you earn or where in the United States you live; if your state is one of these states, your retirement income will be tax-free. Residents who earn more are subject to tax on their benefits, but the state uses a different method than the federal ones to determine the tax base.
Florida, Tennessee and Texas do not charge state income taxes in general, making Social Security taxes largely questionable. West Virginia is the only exception; it uses federal rules to determine what is included in state income taxes. However, most states are kind enough not to tax Social Security, so it's worth considering when choosing where you want to live after you leave your job and start collecting your benefits. It's also important to remember that you may have to disburse money to states, even if they don't tax your Social Security benefits.
Right now it's not a state, but the District of Columbia exempts Social Security benefits from any income tax. Conversely, if you want to retire in the Northeast, keep in mind that a third of its nine states impose income taxes on some residents.