Retirement income which includes social security, pension incomes, 401(k) withdrawals, and IRAs are very popular in the United States of America because retirement planning is more than just about saving. For a very long time, some states in America have been implementing their long-standing policy of not taxing these benefits because they want to support their retiring population by giving them financial relief. So, in this article, we will talk about 13 states that wouldn’t be taxing the social security, 401(k), IRAs, or the pension income of retirees, letting the people keep more of their hard-earned savings.
American States That Do Not Have An Income Tax At All
The amount of tax a person pays on his income depends upon the place he or she lives. In America, there are certain states that charge income taxes on the retirement incomes of retirees and some make exemptions for them such as most states don’t tax social security whereas some tax IRAs and not the pension incomes. However, there are some states that do not charge income tax on retirement income because they do not have an income tax at all. There are a total of nine American states that currently do not have a policy of income taxes. These are:-
Nevada
The first American state that doesn’t have a state income tax is Nevada. It is a landlocked state which is located in the western region of the USA. According to the state’s Department of Taxation, it doesn’t levy state income tax on individuals or retirees. Though Nevada does not have an individual income tax, but it does levy other types of taxes such as property taxes or sales taxes. Nevada is a tax-friendly state for retirees because any income received during retirement will not be taxed at the state level.
New Hampshire
This state is located in the New England region of the northeastern United States. In addition to Nevada, New Hampshire also doesn’t have an income tax because it has a policy on minimizing personal income taxes. The retiring population of the state is protected because the state focuses more more providing them with financial relief. Social Security, pension incomes, IRAs, and 401(k) withdrawals are all exempted from taxation in the state. Though the state doesn’t have an income tax, but it taxes dividends and interests.
Texas
Texas is one of the most populous states in the United States of America which is located in the South Central region. It is one of the nine states that do not have a state income tax, which means that it doesn’t levy income taxes on pension incomes, IRAs, 401(k) withdrawals, and social security benefits. According to the Texas Constitution, the state forbids personal taxes and relies heavily on high sales tax and use tax. Further, the state funds its public services through sales tax, property tax, or other taxes.
Alaska
The next state that does not have an income tax at all is Alaska. It is the largest state in the United States of America which is located in the northwest extremity. The reason that the state does not have an income tax is its unique economic situation, particularly its reliance on revenue especially from oil and natural gas.
Wyoming
The American state of Wyoming is located in the Mountain West subregion of the Western United States. The state does not have a personal income tax because it has some of the lowest taxes and certainly one of the lowest individual tax burdens per capita. With no personal or corporate income tax, the local and state governments rely heavily on mineral revenues to fund public services. Further, the state is called a tax haven because it levies zero corporate income tax and zero personal income tax at the state level.
Tennessee
Tennessee is another American state that does not have a personal income tax. It is a landlocked state located in the southeastern region of the United States. Just like the above-mentioned states, Tennessee also doesn’t have the policy of state income tax it relies heavily on giving financial benefits to its population.
Florida
The state of Florida is popular around the world for having the largest coastline of approximately 1350 miles. In the year 1968, the Constitution of the state was ratified which prevented the state from collecting any kind of personal income tax. Due to this, in the upcoming year, Florida will not be taxing the Social Security benefits, which is a financial relief for its retiring population.
South Dakota
South Dakota is an American state which is located in the north-central region of the United States. The state is popular around the world for forgoing personal income taxes which means that the state does not levy any taxes on the wages, salaries, or retirement income of the people. Revenue from sales and excise taxes, and economic drivers such as agriculture, tourism, and finance are the other reasons behind its non-tax policy.
Washington
The state of Washington is located in the Pacific Northwest region of the United States. Just like Nevada, Wyoming, and Alaska, Washington also does not have a system of personal income tax. This means that the state does not levy income tax on any income such as wages, salaries, and retirement income. The reason behind Washington’s no-personal tax policy is that they want their population to feel financially secure. However, the state levies certain taxes on capital gains.
American States That Tax Income But Not The Retirement Income
Some states in the American region don’t have income taxes at all, however, there are certain states that have income tax but do not levy taxes on the retirement income. These incomes include pensions, 401(k) withdrawals, social security benefits, and IRAs. These states are:-
Mississippi
The American state that levies tax on income but exempts the retirement income is Mississippi. This state is located in the southeastern region of the United States and has a state income tax that ranges from 0% to 4.7%. Though the state has an income tax but it exempts retirement income as long as the person meets the plan requirements. This is so because the state’s taxation policy aims to support its retiring population by allowing them to keep more money in their hands.
Pennsylvania
The state of Pennsylvania has a state income tax which is around 3.07 percent, which implies that every resident pays the same rate regardless of their income level. However, retirement income is not taxable in this because retirement accounts such as IRAs, 201(k)s, social security, and pensions are exempted for residents aged 60 or above. This taxation policy of Pennsylvania aims at providing maximum relief to retirees.
Illinois
Illinois is a very famous American state which is located in the midwestern region of the US. The state of Illinois has an individual income tax of 4.95%, however, retirement income such as pensions, 401(k)s, IRAs, and social security are exempt from it. This is so because the state wants to provide financial security to its population. Further, the Revenue Department of Illinois also states that the retiring population does not have to pay income taxes on the part of their income that comes from federally taxed retirement income.
Iowa
The state of Iowa has a graduated state individual income tax which is approximately 3.9%, according to the Iowa Department of Revenue. However, the state doesn’t tax retirement income because it is a tax-friendly state for retirees. It is said that Iowans aged 55 and above are exempt from paying state taxes on retirement income such as IRAs, pensions, social security, and 401(k)s because it aims at putting less burden on their population.
American States That Don’t Tax Social Securities
Social Security is one of the famous retirement incomes that provide financial support to Americans. For a very long time, every state in America has levied taxes on this income but now, some states have decided to exempt it from their taxation policy. There are a total of 41 states that do not tax social security benefits, recognizing the importance of providing maximum financial relief. These states are Alabama, Arizona, Ohio, Oklahoma, Oregon, South Carolina, Virginia, Wisconsin, Arkansas, California, Delaware, Maine, Maryland, Massachusetts, Michigan, Kansas, Kentucky, Louisiana, Georgia, Hawaii, Idaho, Indiana, Missouri, Nebraska, New Jersey, New York, North Carolina, and North Dakota.
State Income Taxes Are Unavoidable
Though the American states have announced that there are no state income taxes, but actually taxes are inevitable. Even if a person lives in a state where retirement income is not taxed, they still pay taxes in some other forms such as property tax, inheritance tax, and many more, regardless of where the person lives. Some states, except Delaware, Alaska, Montana, Oregon, and New Hampshire, have a sales tax, which people must pay no matter what. Though the taxes cannot be avoided but the retiring population can reduce them by choosing their living place optimally.
