The Most Tax-Friendly States for Retirees Relying on Social Security (2025 Update)
If you’re eyeing a retirement filled with sunshine and savings, you might want to check more than just the weather forecast. For retirees living on a fixed income — especially those who rely heavily on Social Security — state tax policy can significantly impact your financial well-being.
While the federal government has clear guidelines for taxing Social Security benefits, states handle it in wildly different ways. Some won’t touch your benefits at all. Others might tax them depending on how much you earn. A few still tax Social Security aggressively, which could come as a surprise if you’re not paying attention.
In this post, we break down the most (and least) tax-friendly states for retirees in 2025, explain key exemptions and income thresholds, and explore other taxes you may want to factor into your retirement location decision.
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🌴 States With No Income Tax: Simple and Stress-Free
Let’s start with the most straightforward scenario: states that don’t have a state income tax at all. In these places, you won’t owe a dime on your Social Security income — or on any other retirement income like pensions, 401(k) withdrawals, or IRA distributions.
As of 2025, these income-tax-free states include:
• Alaska
• Florida
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming
For retirees who want predictability and simplicity in tax planning, these states are hard to beat. You’ll never have to worry about thresholds, exemptions, or phased-out deductions.
However, there’s often a trade-off. Many of these states rely more heavily on other revenue sources, which can mean higher sales taxes, property taxes, or fuel taxes. For example, while Tennessee doesn’t tax income, it does have one of the highest combined sales tax rates in the country.
Still, for those who value ease and clarity, these eight states top the list for tax-friendliness in retirement.
✅ States That Fully Exempt Social Security (and Go Beyond)
Next, let’s highlight states that not only don’t tax Social Security benefits, but also give retirees a break on other forms of retirement income.
These include:
• Georgia
• Illinois
• Iowa
• Mississippi
• Pennsylvania
In Georgia, for example, residents age 65 or older can exclude up to $65,000 per person in retirement income — including pensions and IRA withdrawals. That means a couple could potentially exclude up to $130,000 of income annually.
In Pennsylvania, retirees are completely off the hook for taxes on Social Security, public and private pensions, and IRA distributions, as long as they’re over age 59½. Mississippi and Illinois offer similar comprehensive exemptions.
These states can be an excellent fit for retirees who have modest but diversified income sources — perhaps a pension, some Social Security, and the occasional IRA withdrawal. The combination of full Social Security exemption and generous treatment of other retirement income makes them particularly attractive for tax-savvy retirees.
📊 How Modest Retirement Income Can Trigger Unexpected Taxes
Even in states that exempt Social Security, other types of retirement income — such as pensions, 401(k), or traditional IRA withdrawals — may be taxable. And depending on your total income, those taxes can add up.
For example, while New Mexico and Minnesota do offer partial exemptions on Social Security, those breaks phase out quickly at modest income levels. A retiree with just $25,000 in IRA withdrawals might find themselves taxed on benefits they thought were safe.
This is where income thresholds come into play. Some states exempt retirement income up to a certain limit, after which taxes start to kick in. Others provide deductions that scale down as your income rises.
Here are a few noteworthy examples:
• Georgia: Offers up to $65,000 per person in retirement income exemption after age 65.
• Illinois and Mississippi: Fully exempt qualified retirement income.
• Pennsylvania: Exempts pensions and IRA withdrawals for those 59½ and older.
The key takeaway? Don’t assume you’re in the clear just because your Social Security is exempt. If you plan to draw from IRAs or a pension, your adjusted gross income (AGI) matters — and may affect what’s taxed.
🧾 Looking Beyond Income: Property, Sales & Other Hidden Taxes
A lot of retirees focus only on income taxes when choosing where to live — but that’s just one piece of the puzzle. Let’s take a look at other taxes that could impact your retirement budget.
🏡 Property Taxes
Some states that don’t tax income more than make up for it with high property tax bills. For instance:
• New Jersey, Connecticut, and Illinois rank among the highest in the nation for property tax rates.
• On the other hand, South Carolina and Georgia offer generous senior homestead exemptions or property tax freezes.
Retirees planning to own a home should dig into local county tax policies as well — these can vary widely within states.
🛍️ Sales Taxes
States with no income tax often rely on sales taxes for revenue. That can affect your everyday budget more than you think — groceries, prescriptions, and clothing can all get pricier.
• Tennessee, Nevada, and Washington have some of the highest combined sales tax rates.
• In contrast, Delaware and New Hampshire have no sales tax at all, which can make a noticeable difference in your bottom line.
🚗 Other Taxes
Additional taxes to be aware of:
• Vehicle property taxes in states like Virginia or Missouri
• Estate or inheritance taxes in places like Oregon or New York
• Fuel taxes, which can drive up transportation costs
It’s worth considering the total tax burden, not just income tax, when evaluating retirement destinations.
📈 Where Social Security Is Still Taxed — and How to Strategically Avoid It
As of 2025, nine states still tax Social Security in some form — though many have income-based exemptions or partial exclusions. These include:
• Connecticut
• Rhode Island
• New Mexico
• Utah
• Vermont
• Minnesota
• Montana
• Colorado
• West Virginia
However, the picture isn’t all bad. Many of these states offer AGI-based exemptions that increase with inflation. For example:
• Utah now exempts Social Security income fully for those with AGIs up to $90,000 (up from $75,000 in 2024).
• New Mexico fully exempts benefits for AGIs under $100K single / $150K joint.
• Montana now indexes its exemption to inflation ($5,500 single / $11,000 joint).
• West Virginia will phase in full exemption by 2026 (65% exempt in 2025).
In states like Minnesota and Vermont, partial exemptions phase out at relatively low incomes — meaning even modest IRA withdrawals can make your Social Security taxable.
Retirees can reduce their tax burden by carefully managing their income:
• Delay IRA withdrawals if possible until RMDs kick in.
• Consider Roth conversions during low-income years.
• Strategically space out large withdrawals to stay under exemption thresholds.
• Work with a tax planner to minimize your AGI exposure over time.
🔄 2025 State Tax Changes Worth Noting
Several states have tweaked their tax rules for 2025, offering new relief to retirees or adjusting existing thresholds:
• West Virginia: 65% of Social Security benefits deductible in 2025; full exemption starts 2026.
• Utah: Raised exemption threshold to $90,000 AGI.
• Montana: Now indexes its $5,500/$11,000 exemption to inflation.
• Minnesota: Phaseouts are expected to increase with inflation.
• New Mexico: Full exemption for AGIs below $100K (single) or $150K (joint), but not indexed.
These updates reflect growing momentum among states to ease the burden on retirees — especially those with modest incomes.
✅ Final Thoughts: Where Should You Retire for Tax Savings?
When it comes to tax-friendliness, the best states for retirees living primarily on Social Security in 2025 are those that:
• Have no state income tax at all (e.g., Florida, Texas, Nevada)
• Offer full exemptions for Social Security and retirement income (e.g., Georgia, Illinois, Pennsylvania)
• Provide senior-specific property tax breaks or exemptions (e.g., South Carolina, Wyoming, South Dakota)
However, keep in mind that even a small amount of retirement income — say, a $15,000 IRA withdrawal — can tip you into taxable territory in states with phased-out exemptions. Planning matters, and what’s “tax-friendly” for one retiree might not be for another.
Thinking about making a move in retirement? It pays to zoom out and consider the full tax picture — income, property, sales, and beyond. And remember: today’s tax laws may not be tomorrow’s. When in doubt, consult a tax advisor who specializes in retirement income planning.
❓ Frequently Asked Questions (FAQ)
Q: If my state doesn’t tax Social Security, am I completely in the clear?
- A: Not necessarily. Many states that exempt Social Security still tax other retirement income like 401(k) or IRA withdrawals. It’s important to understand your total income picture, especially how it affects your adjusted gross income (AGI), which may trigger other taxes or reduce certain benefits.
Q: What’s the difference between a deduction and an exemption?
- A: An exemption typically excludes certain income from being taxed at all (e.g., Georgia’s $65,000 retirement income exemption), while a deduction reduces your taxable income by a specific amount. Both lower your tax bill, but in different ways.
Q: Can I reduce taxes by moving to a different state in retirement?
- A: Potentially, yes. Many retirees move to states with no income tax or generous retirement exemptions. But be sure to weigh the full tax picture—property, sales, and estate taxes can offset the savings from income tax alone.
Q: What if I split my time between two states?
- A: Your primary residence (domicile) determines your tax status. Even if you live part of the year in a low-tax state, you must establish legal residency there to benefit from its tax advantages. This can involve changing your driver’s license, voter registration, and other indicators.
Q: Do these state rules apply to federal taxes too?
- A: No. The federal government has separate rules for taxing Social Security, based on income thresholds. Up to 85% of your benefits may be taxable at the federal level, regardless of your state’s policy.
Q: Will these tax laws stay the same in the future?
- A: Not guaranteed. States often change tax rules in response to budget needs or shifting political priorities. That’s why it’s wise to revisit your retirement tax strategy regularly and work with a professional who stays current on legislative updates.
Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Disclaimer: This article is intended for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws and exemptions vary by state and may change over time. Before making decisions about relocation, retirement planning, or tax strategy, consult with a certified financial planner (CFP®), CPA, or qualified tax advisor who understands your personal situation and the rules in your state of residence.