Retirees deciding where to live face a direct financial question: will the state tax their Social Security checks, pension payments, or other retirement distributions? More than a dozen states impose no state-level tax on any of these income streams, either because they have no income tax at all or because they specifically exclude retirement income from taxation. Recent policy changes in Iowa, New Hampshire, and Tennessee have expanded that list, sharpening the contrast with states that still treat retirement checks as taxable income.
Why retirement-income tax rules are shifting faster after 2020
Several states have moved to eliminate or reduce taxes on retirement income since 2020, creating real differences in take-home pay for people on fixed incomes. Tennessee repealed its Hall income tax for tax periods beginning January 1, 2021, or later, according to the Tennessee Department of Revenue. That tax had applied to interest and dividend income, which often makes up a significant share of retiree portfolios. New Hampshire followed a similar path, repealing its Interest and Dividends Tax effective January 1, 2025, as confirmed by the New Hampshire revenue administration. Both states now join Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming as states with no broad-based personal income tax.
The hypothesis that these policy changes drive faster net in-migration of older filers is plausible but not yet confirmed by the available evidence. IRS county-to-county migration data and state revenue filings could show whether filers over age 65 are relocating at higher rates to states that expanded retirement-income exclusions after 2020. No primary dataset in the current reporting block, however, provides that direct comparison. What the official state records do confirm is that the menu of tax-free options for retirees has grown in a short period.
State-by-state evidence from revenue department records
The clearest cases come from states that have no income tax whatsoever. Alaska, for example, does not have a state income tax, a fact stated on the Alaska retirement website. Retirees in Alaska owe nothing to the state on Social Security, pensions, 401(k) withdrawals, or any other income category.
States that do levy an income tax but carve out retirement income present a different, sometimes more complex, picture. The Illinois revenue guidance states that the state does not tax federally taxed portions of Social Security benefits and does not tax pension or retirement income reported on federal returns. Illinois has a flat income tax, yet retirees drawing from common sources such as public pensions, 401(k) plans, and Social Security see none of that income taxed at the state level.
Iowa restructured its approach after 2023. The Iowa Department of Revenue explains that qualifying retirement income is excluded for eligible taxpayers under the state’s retirement-income exclusion rules. Broadly, the law allows taxpayers who are 55 or older, disabled, or the surviving spouse of an eligible individual to subtract qualifying retirement income from their Iowa taxable income. Covered sources include most employer-sponsored pensions, annuities, and IRA distributions, subject to the definitions in state law and administrative guidance.
In parallel, Iowa is overhauling its broader income tax structure. A separate Iowa revenue document outlines the state’s transition to lower, flatter individual income tax rates over several years. For retirees, that means two layers of relief: many forms of retirement income are excluded entirely, and any remaining taxable income may face a reduced marginal rate compared with prior years. This combination moves Iowa closer to states that market themselves as retiree-friendly, even though it still levies an income tax on wages and other non-retirement income.
How these rules affect household budgets
The practical impact of these policies can be substantial. A retired couple drawing $40,000 in combined Social Security benefits and $30,000 from a traditional IRA might owe several thousand dollars a year in state income tax in a jurisdiction that fully taxes both streams. In a state like Illinois, where Social Security and qualifying retirement income are exempt, their state income tax bill on that same income could drop to zero. In Iowa, the exclusion for qualifying retirement income could similarly remove a large share of their distributions from the tax base, depending on their ages and eligibility status.
States without any income tax go even further. In Alaska, Florida, or Texas, the same couple would not only avoid state tax on their retirement distributions but also on any part-time wage income or investment earnings. The trade-off is that these states often rely more heavily on sales taxes, property taxes, or resource-related revenues, which can affect retirees differently depending on their spending patterns and housing choices.
What retirees should watch next
For people approaching retirement, the key takeaway is that state tax treatment of Social Security, pensions, and IRA withdrawals is not static. Legislatures have shown a willingness in recent years to expand exemptions or phase out taxes on interest, dividends, and other investment income that older residents rely on. Future changes could further widen the gap between high-tax and low-tax states, or, conversely, fiscal pressures could prompt some jurisdictions to revisit generous exclusions.
Anyone considering a move should review the latest guidance from state revenue departments, paying close attention to age thresholds, income limits, and definitions of qualifying retirement income. The examples from Illinois, Iowa, and the no-income-tax states illustrate how quickly the landscape can shift-and how those shifts can materially change the after-tax value of a retirement paycheck.
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