38 States in the US That Do Not Tax Social Security

For decades, Social Security benefits have been under fire for being grossly inadequate. When combined with inflation, these benefits alone cannot ensure a comfortable retirement. An additional tax on these benefits can further reduce their value by a great margin. This can be a complete game-changer for retirees who bank on their Social Security benefits for most of their retirement needs and may even result in a compromised standard of living. Consider consulting with a professional financial advisor who can guide you through the intricacies of Social Security benefits, helping you maximize your savings while minimizing your taxes at the same time.

Regardless of whether Social Security constitutes a major chunk of your retirement corpus or is just a cherry on the cake, here are some things you should know about how it is taxed.

Is Social Security tax federal or state?

Social Security benefits are taxed at the federal level depending on the amount and sources of your income. As per the prevailing tax laws, if your gross income is between $25,000 and $34,000, up to 50% of your total benefits may be taxed. Further, if your gross income exceeds $34,000, you can be taxed on up to 85% of your benefits.

Do you pay state taxes on Social Security benefits?

If you are wondering, “are state taxes taken out of Social Security”, the answer to this question depends upon the state you live in. 13 states namely, Connecticut, Colorado, Kansas, Minnesota, Montana, Missouri, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia levy a state tax on Social Security benefits.

Fortunately, there are also some states with no tax on Social Security. In total there are 38 states that don’t tax Social Security. So, if you reside in any of these states, you will enjoy tax-free benefits. However, these states do charge other types of taxes. Given below is a detailed explanation of the same.

What states do not tax Social Security benefits?

1. Alabama

Alabama does not impose any tax on Social Security benefits. Moreover, there is no inheritance or estate tax either. But there are other taxes in the state. The income tax limit in the state of Alabama ranges between 2% and 5%. In addition to this, the state also charges sales tax of up to 9.22%. Although the general sales tax limit is only 4%, some localities can charge up to 7.5% over the limit. The property tax rate in the state is $417 per $100,000 of the estimated home value.

2. Alaska

Alaska can be a retiree’s paradise. There is no Social Security tax, sales tax, state income tax, inheritance tax, or estate tax in Alaska. However, some localities can charge up to 7.5% sales tax. Moreover, the average property tax rate is $1,183 for every $100,000 of the value of the home.

3. Arizona

There is no Social Security tax, inheritance tax, or estate tax in Arizona. However, the state does charge income tax of 2.59% to 4.5%. The median property tax rate in the state is $687 per $100,000 of the property’s value.

4. Arkansas

Arkansas levies a minimum of 2% and a maximum of 6.9% income tax. In addition to this, the state also charges property tax amounting to $629 per $100,000 of the house’s value. Residents of Arkansas pay a sales tax of up to 9.47% depending on their locality. However, there is no inheritance or estate tax.

5. California

The sunny state of California charges income tax ranging from 1% to 13.3%. The property tax is charged at $760 per $100,000 of the house’s value. The state also levies a sales tax of 7.25% along with an additional 2.5% in some localities. California residents do not pay an estate or inheritance tax.

6. Delaware

Delaware does not charge estate, inheritance, or sales tax from its residents. However, the average property tax rate is $563 per $100,000 of the house’s value. The income tax can range from 2.2% to 5.55% on taxable income under $60,000 and 6.6% for taxable income exceeding $60,000.

7. Columbia

The District of Columbia levies a 6% sales tax. There is no inheritance tax, but the state imposes an estate tax of 12% to 16% on estates exceeding $5,762,400 in value. Moreover, the property tax rate is $548 per $100,000 of the estimated home value. And the income tax range is between 4% and 8.95%.

8. Florida

Florida does not impose any state income tax or estate and inheritance tax. However, the state levies a sales tax of 6% and a property tax of $928 for every $100,000 of the assessed home value.

9. Georgia

Residents of Georgia pay income tax ranging between 1% and 5.75%. The state imposes a 4% sales tax and localities can add an additional sales tax of up to 5%. However, there is no inheritance or estate taxes. The property tax rate has been fixed at $905 per $100,000 of the home value.

10. Hawaii

The income tax range for the state of Hawaii lies between 1.4% and 11%. There is a 4% sales tax. Moreover, Hawaii, Honolulu, and Kauai also charge a surcharge tax of 0.5%. The property tax in the state is calculated at $273 per $100,000 of the assessed home value.

In addition to this, Hawaii is an exception in this list as it charges an estate tax of 10% to 20% on estates worth $5.49 million or higher. However, there is no inheritance tax.

11. Idaho

Idaho charges a minimum of 1.25% and a maximum of 6.925% income tax. The state also levies a 6% sales tax. Resort communities can add an extra 3% to this. Residents also pay food tax but they can claim an income tax credit for the same. For senior citizens, this is fixed at $120 and at $100 for others. There is no tax on estate or inheritance. But property taxes are charged at $719 per $100,000 of the home value.

12. Illinois

Illinois charges a flat 4.95% income tax. The state also taxes estates worth more than $4 million at a maximum of 16%. Additionally, the state levies a 6.25% state tax, with some localities adding up to 10% more. Residents also pay 1% tax on food and prescription and non-prescription drugs. The property rate of the state is high at $2,296 per $100,000 of the assessed home value.

13. Indiana

The sales tax in the state is charged at 7%. The income tax is levied at 3.23% for all residents, although some counties may charge up to 3.38%. Some counties also levy a sales tax of 1% to 2% on food and beverages. There is no estate or inheritance tax but the property tax rate is charged at $860 per $100,000 of the home value.

14. Iowa

The income tax is charged between 0.33% and 8.53%. Moreover, residents can deduct their federal income tax from their state taxable income. The sales tax is charged at 6% along with an additional 1% in some localities. Iowa also levies an inheritance tax ranging between 5% and 15%. However, there is no estate tax. The state’s property taxes are high at $1,559 per $100,000 of the assessed home value.

15. Kentucky

Kentucky levies an inheritance tax ranging from 4% to 16% to beneficiaries other than the spouse, child, grandchild, parent, brother, sister, half-brother, and half-sister. The sales tax in the state is fixed at 6% for all localities. The income tax range is also fixed at a flat rate of 5% for all residents. Lastly, there is no estate tax imposed on residents but the property tax rate is $862 per $100,000 of the assessed home value.

16. Louisiana

There is no inheritance tax or estate tax in Louisiana but the state levies a sales tax of 4.45%. Localities can further add up to 7% sales tax. The income tax limit ranges between 2% and 6% and residents can deduct federal income tax from the state taxable income. The average property tax rate for homeowners is set at $532 per $100,000 of the property’s value.

17. Maine

The income tax range in Maine lies between 5.8% and 7.15%. The property tax rate is $1,363 per $100,000 of the assessed home value. Residents also pay 5.5% sales tax on food and groceries and 8% sales tax on prepared foods. The estate tax can range between 8% and 12%. However, there is no inheritance tax.

18. Maryland

The income tax range in the state of Maryland varies between 2% and 5.75%. Baltimore and 23 other counties also levy additional income tax ranging between 1.75% and 3.20%. Property taxes are charged at $1,095 for every $100,000 of the assessed home value. The state also charges estate tax of 0.8% to 16% on estates exceeding $5 million. Moreover, an inheritance tax of 10% can be charged on beneficiaries other than the spouse, child, parent, grandparent, stepchild, stepparent, brother, or sister.

19. Massachusetts

Massachusetts charges a flat-rate income tax of 5.05%. The sales tax is levied at 6.25% and estates worth more than $1 million are taxed between 0.8% and 16%. The median property tax rate is $1,229 per $100,000 of the house value. There is no inheritance tax levied in the state.

20. Michigan

There is no tax on Social Security in Michigan. The state also does not levy any tax on inheritance or estate. However, the state does levy a 6% sales tax. Further, the income tax is charged at a flat rate of 4.25%. The median property tax rate is $1,581 for every $100,000 of the assessed home value.

21. Mississippi

The income tax range lies between 3% and 5% in Mississippi. The sales tax is levied at 7%. Jackson and Tupelo charge an additional sales tax of 1% and 0.25%, respectively. There are no taxes levied on estates or inheritance. However, the state levies a property tax rate of $807 for every $100,000 of the home value.

22. Nevada

Nevada levies a sales tax of 6.85% with some localities adding up to 1.65% as additional sales tax. The property tax averages at $636 per $100,000 of assessed home value. Nevada does not levy any state income tax, inheritance tax, or estate tax.

23. New Hampshire

There is no sales tax in New Hampshire. There is also no inheritance, estate, and income tax levied on the residents of the state. However, the state levies a 5% tax on dividends and interest of more than $2,400 on individuals and $4,800 on married joint filers. The property tax in the state is $2,195 per $100,000 of the house value.

24. New Jersey

New Jersey imposes a sales tax of 6.625%. Furthermore, the state charges 1.4% to 10.75% income tax. There is a 1% extra payroll tax for residents of Newark. The median property tax rate is $2,471 for every $100,000 of the value of the house. The inheritance tax is imposed at 11% to 16% for certain beneficiaries. However, there is no inheritance tax levied in the case of property transfers made to a spouse, child, parent, and grandparents. Apart from this, transfers to domestic partners, civil union partners, as well charities are also exempt from inheritance tax. There are no estate taxes in the state.

25. New York

New York levies a 4% sales tax. However, some localities can add 4.875% over and above this limit. The income tax ranges between 4% and 8.82%. The median property tax rate in New York is $1,706 per $100,000 of the assessed house value, the 7th-highest in the country. Estates valued at more than $5.85 million are levied with an estate tax of up to 16%.

26. North Carolina

North Carolina imposes a 4.75% sales tax, with some localities adding up to 2.75% more. The state imposes a flat rate of 5.25% on all residents. The state does not levy estate and inheritance taxes. However, the median property tax rate is $850 for every $100,000 of the value of the home.

27. Ohio

Ohio levies a sales tax of 5.75%. The average property rate in the state is $1,575 per $100,000 of the home value. Moreover, the income tax ranges from 2.85% to 4.797%. The state of Ohio does not impose any inheritance tax or estate tax.

28. Oklahoma

The income tax rate in Oklahoma ranges from 0.5% to 5%. The sales tax is fixed at 4.5%. The state does not levy any inheritance or estate tax. However, homeowners are required to pay an average property tax rate of $899 per $100,000 of the assessed home value.

29. Oregon

There are no sales and inheritance taxes in Oregon. But the state imposes an estate tax of 10% to 16% on estates exceeding the value of $1 million. The median property tax rate is $1,006 for every $100,000 of the house’s value. Additionally, the income tax is charged at 5% to 9.9%. And residents are permitted to deduct a portion of their federal income tax from their state taxable income.

30. Pennsylvania

The state sales tax amounts to 6%. Philadelphia further imposes a local sales tax of 2% over the state limit. Allegheny County also charges a local sales tax of an additional 1%. The inheritance tax is imposed at 4.5% for transfers to direct beneficiaries according to lineage. In case of transfers made to siblings, the state levies an inheritance tax of 12%. For transfers made to other heirs, an inheritance tax of 15% is levied. The state does not charge an estate tax.

The income tax range is levied at a flat rate of 3.07%. The median property tax rate is imposed at $1,589 for every $100,000 of the estimated home value.

31. South Carolina

South Carolina levies a 6% sales tax. The state does not levy estate or inheritance tax. However, the property tax rate is $573 per $100,000 of the assessed home value. The income tax ranges between 3% and 7%.

32. South Dakota

The state of South Dakota does not levy any state, inheritance, or estate tax. However, the state charges a 4.5% sales tax and the median property tax rate is $1,321 per $100,000 of the home value.

33. Tennessee

Tennessee levies a 7% sales tax. The average property tax rate is $727 per $100,000 of the home value. Apart from this, there is no state income tax, inheritance, or estate tax.

34. Texas

The state of Texas has no state income tax, inheritance tax, or estate tax. The state’s sales tax is levied at 6.25% with some localities adding up to 2% on top. The state’s median property tax rate is $1,807 per $100,000 of assessed home value.

35. Virginia

Virginia levies a 5.3% sales tax. Williamsburg, York County, and James City County levy an additional 1.7 sales tax. In addition to this, the income tax ranges between 2% and 5.75%. And the property tax rate is $814 per $100,000 of the house’s estimated value. Lastly, residents do not have to pay any inheritance tax or estate tax.

36. Washington

Washington also does not impose any income tax. However, a sales tax of 6.5% is imposed. The property tax in the state is levied at $1,008 for every $100,000 of property’s value. Further, the state levies an estate tax of 10% to 20% on estates exceeding the value of $2.193 million. But there is no inheritance tax.

37. Wisconsin

Wisconsin imposes income tax ranging from 3.86% to 7.65%. The sales tax is charged at 5% and the median property tax rate is $1,906 for every $100,000 of the estimated home value. The state does not levy any inheritance or estate tax.

38. Wyoming

Residents of Wyoming do not pay any state income tax. The state also does not impose estate and inheritance tax. However, Wyoming levies a sales tax of 4% and an average property tax rate of $609 per $100,000 of the house’s estimated value.

To summarize

Your tax liabilities can largely dictate your post-retirement life. So, make sure you take cognizance of all state taxes before you retire. For more guidance, you can also consult a financial advisor in your area and pick states with no tax on Social Security to live your post-retirement years.