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26 States That Do Not Tax Social Security Income

Happy retiree couple
Canon Boy /

When trying to figure out where to retire, one consideration is how much of your income will be taxed.

Depending on where you choose to live, you might get a state tax credit or deduction on some of your retirement income. Or, you might avoid state taxes on your retirement income entirely.

In fact, the following 26 states either don’t levy state income taxes or don’t tax certain types of retirement income, including Social Security benefits, according to an analysis by the Tax Foundation.

We start with the states that fully exempt Social Security benefits from all residents’ income taxes as of 2020 and end with a look at the states that have no income tax at all.

Note, however, that just because a state isn’t on this list doesn’t mean all of its residents will owe state taxes on their Social Security benefits.

For example, some states that tax Social Security give exemptions based on factors like age or income, as the Tax Foundation reports. Other states tax Social Security to the same extent that the federal government taxes it — and only about half of Social Security beneficiaries owe federal taxes on their benefits.

1. California

Oakland, California
yhelfman /

California’s individual income tax rates range from 1% up to 12.3% for residents with a taxable income of up to $1 million, according to the Federation of Tax Administrators. For those whose taxable income is more than $1 million, California levies an additional 1% tax, making the state’s maximum tax rate 13.3%. However, the state excludes Social Security benefits from taxable income.

If you’re considering retiring in California, don’t overlook the city of Palm Desert. Money ranked it No. 2 on its list of the eight best places to retire in the U.S. in 2020.

2. Indiana

William Saylor /

Indiana has a flat personal income tax rate of 3.23%. However, you won’t be taxed on Social Security benefits.

More good news for people considering moving to Indiana for retirement: A 2020 SmartAsset analysis found that it’s the fifth-most affordable state for homebuyers. As SmartAsset explains in “The 10 Most Affordable States to Buy a Home“:

“The Hoosier State has the second-lowest average closing costs in the study, at $2,627. Indiana also is tied for the fifth-lowest median listing price per square foot, at $108. It has the seventh-lowest median listing price overall, at $186,000.”

3. Iowa

Iowa field
Kyle Waters /

Iowa’s personal income tax rates range from 0.33% to 8.53%. But the state does not tax Social Security benefits.

4. Kentucky

A historic district of Louisville, Kentucky
Philip Rozenski /

Kentucky has a flat personal income tax rate of 5%. However, Social Security benefits are exempt from state income taxes.

5. Maine

Portland, Maine
Jo Ann Snover /

Maine’s personal income tax rates range from 5.8% to 7.15%. However, you won’t owe state income taxes on Social Security income in Maine.

6. Maryland

Annapolis, Maryland
Sean Pavone /

Maryland’s personal income tax rates range from 2% to 5.75%, but the state excludes Social Security benefits from income.

Some possible bad news for retirees: Maryland is the only state in the nation that levies both an inheritance tax and an estate tax.

7. Oregon

Portland, Oregon waterfront
Josemaria Toscano /

In Oregon, the rates for personal income taxes range from 4.75% to 9.9%. Social Security benefits are exempt from state income taxes, though.

8. Pennsylvania

Pittsburgh, Pennsylvania
Sean Pavone /

Pennsylvania has a flat personal income tax rate of 3.07%. However, Social Security benefits aren’t taxed.

9. Wisconsin

Madison, Wisconsin
Ian M Johnson /

Wisconsin’s personal income tax rates range from 4% to 7.65%. However, you won’t pay state income taxes on Social Security benefits.

10. Louisiana

Lake Pontchartrain
By Judy M Darby /

Louisiana’s income tax rates range from 2% to 6%. However, Social Security benefits are exempt from state income taxes.

11. North Carolina

A senior man and German Shepherd dog sit on a cliff on Roan Mountain, located along the Tennessee-North Carolina state line in the Appalachian Mountains
Cvandyke /

North Carolina has a flat income tax rate of 5.25%, but those who receive Social Security benefits won’t pay taxes on that income.

12. Hawaii

Shane Myers Photography /

Hawaii feels like paradise to many, but residents can expect personal income tax rates ranging from 1.4% to 11%. Some retirement income — like Social Security benefits and employer-funded pensions — isn’t taxed there, though.

The Aloha State also boasts the lowest real-estate property tax burden of any U.S. state, as we recently reported in “10 States With the Cheapest Property Taxes.”

13. Arkansas

IrinaK /

In Arkansas, you’ll pay income tax on some of your personal income, at a rate ranging from 2% to 6.6%. However, some types of income that retirees may receive are exempt from state income tax. These types of income include Social Security benefits, military pensions and life insurance payouts that are the result of a death.

Also, note that two of Arkansas’ income tax rates fell for the 2020 tax year. The top rate, for example, was 6.9% for 2019.

14. Mississippi

Realest Nature /

Mississippi taxes personal income at rates ranging from 3% to 5%. However, it does not tax benefits received from Social Security. Additionally, the state notes:

“Generally, retirement income, pensions and annuities are not subject to Mississippi Income tax if the recipient has met the retirement plan requirements.”

15. Michigan

Monroe, Michigan
Cozyartz Digital Media /

Michigan’s personal income tax rate is a flat 4.25%. However, Social Security benefits aren’t taxed, and neither are U.S. military pensions. Also excluded from state income taxes are Michigan National Guard pensions and rollovers that are not included in the adjusted gross income (AGI) on federal tax returns.

Michigan is also one of several states that offers a property tax deferral program for eligible seniors, as we detail in “12 States Where Older Homeowners Can Defer Property Taxes.”

16. New Jersey

Newark, New Jersey at night
mandritoiu /

New Jersey’s income tax rates range from 1.4% to 10.75%. New Jersey also has the highest real-estate property tax burden of any U.S. state, according to WalletHub.

However, multiple types of income that retirees might receive aren’t taxed. They include Social Security benefits, as well as U.S. military pensions and military survivor’s benefit payments. Additionally, life insurance proceeds received because of a person’s death and employees’ death benefits are exempt from state income taxes.

17. Alabama

Skyline of Birmingham at Railroad Park in Birmingham, Ala.
Sean Pavone /

Alabama’s personal income tax rates range from 2% to 5%. But multiple types of income that retirees might receive are exempt from state income taxes. Just to name a few examples, Alabama’s Department of Revenue lists the following types of income as exempt:

  • Social Security benefits
  • U.S. Civil Service Retirement System benefits
  • Retirement pay from the military
  • Dividends on veterans’ life insurance
  • Life insurance proceeds from someone’s death

More good tax news: Alabama has the second-lowest property tax burden of any U.S. state, as we reported in “10 States With the Cheapest Property Taxes.”

18. New Hampshire

New Hampshire government
Jeffrey M. Frank /

In New Hampshire, only income from dividends and interest is taxed, with the tax rate for these types of income a flat 5%. So, as a retiree in New Hampshire, you’ll only pay state income taxes on interest and dividends, with no tax on Social Security benefits.

If you own your retirement home in New Hampshire, though, you can expect to pay the third-highest real-estate property tax burden of any state.

19. Tennessee

Nashville, Tennessee
jdross75 /

In Tennessee, you don’t need to worry about paying taxes on Social Security income or many other types of retirement income, since as of 2020, it’s the only state besides New Hampshire that taxes only dividend and interest income.

However, even that tax, known as the Hall Tax, is being phased out — meaning Tennessee soon will become one of the states that levies no personal income taxes. As part of that phaseout, the Hall Tax rate fell to 2% for tax year 2019 and 1% for 2020.

20. Alaska

Andrea Izzotti /

Alaska is one of seven states that levies no personal income taxes at all as of 2020. If you’re willing to head that far north, consider retiring in the city of Anchorage. We cited it in “The 25 Best Places in the U.S. to Retire in 2019.”

21. Florida

Lake Eola Park, Orlando, Florida
aphotostory /

Orlando was on our list of best places to retire in the U.S. in 2019 — and not just for the great weather. The state of Florida has no personal income tax at all, so retirees pay no state income taxes.

22. Nevada

Lake Mead, Nevada
CrackerClips Stock Media /

Nevada can be a great place to retire if you want a warm climate and access to Las Vegas. Plus, it’s one of the seven states that doesn’t levy a personal income tax as of 2020.

23. South Dakota

Sharon Day /

If you retire to South Dakota, you won’t have to worry about paying income tax at all, since it’s one of the states that doesn’t levy an income tax.

24. Texas

Bicyclists cross wooden bridge Buffalo Bayou Park view downtown Houston
Nate Hovee /

Many things might be bigger in Texas, but the tax bill isn’t one of them. This is one of the states that doesn’t tax any personal income, including retirement income.

25. Washington

Tacoma, Washington
Druid007 /

In Washington, you don’t have to worry about being taxed on your retirement income. This is one of the states that doesn’t levy a personal income tax on any of its residents.

26. Wyoming

Jackson Hole, Wyoming
f11photo /

Wyoming is the last of the seven states that don’t levy a personal income tax as of 2020. The state also boasts one of the 10 lowest real-estate property tax burdens in the country.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.


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Pros and Cons of a Reverse Mortgage During the Pandemic Crisis

Senior woman on the phone discussing paperwork
fizkes /

This story originally appeared on NewRetirement.

For many people nearing retirement age, home equity is often the single largest component of net worth. It can be a valuable contributor to retirement and financial well-being — especially during this pandemic and time of monetary strain.

You can tap home equity by downsizing, securing a reverse mortgage or getting a home equity loan. However, the economic conditions might make this a particularly interesting time for a reverse mortgage.

A reverse mortgage is a type of loan for homeowners age 62 and older. Unlike a traditional “forward” mortgage, reverse mortgages do not require monthly payments toward the loan balance. And, reverse mortgages can pay off existing mortgages and eliminate monthly mortgage payments.

However, as you tap into your home equity, the loan balance grows. Borrowers repay the loan balance when they sell the home or move out — usually using the proceeds of the sale of the home.

Following are some pros and cons to review before considering a home mortgage.

Pro: You can stay in your home

Seniors couple man woman having fun happy
Dmytro Zinkevych /

Having the confidence that you can stay in your home is more important now than ever before.

With a reverse mortgage, you retain homeownership and the ability to live in your home. You must keep up insurance, property taxes and maintenance for your home, but it is yours to live in as long as you want.

Pro: Home values have not fallen

Realtor helping couple with home for sale
SpeedKingz /

The more your home is worth, the more money you can tap with a reverse mortgage loan.

Home prices in most areas have been historically high recently, but it is unclear whether home prices will remain strong or not.

A recent report from Fannie Mae projected that though home sales would fall by 15% in 2020 due to issues with both supply (not many houses for sale) and demand (few buyers), home prices would remain stable. However, many experts predict that the severe downturn in the economy will eventually cause home values to fall.

Acting now might lock in a higher loan amount than you could get next year.

Pro: Interest rates are very low

Senior couple reading

Interests rates are another factor that impact eligibility and how much money you can get from a reverse mortgage. Interest rates also impact how much the loan will cost you.

Low interest rates mean you are eligible for more money at a lower cost.

Pro: It can be a good hedge

A senior father has a serious conversation with his adult son
Monkey Business Images /

None of us know what is going to happen in the future. How long until we are fully out of quarantine, or until people find work again?

Having access to money can be a good hedge against uncertainty. And a reverse mortgage can give you that kind of option. Furthermore, a reverse mortgage line of credit can make the loan more appealing.

A line of credit is a source of money that is made available to you by a financial institution, which can be an excellent backup source of funds.

Pro: Line of credit grows, protecting you from falling home prices

A senior couple enjoys the outdoors on a bench in a park
Iakov Filimonov /

In addition to being a great safety net option, other key benefits to a reverse mortgage line of credit include:

  • Growth: Your untouched reverse mortgage line of credit can grow in value. Money in a reverse mortgage line of credit grows at the same rate as the interest accrued on the loan, including the .5% mortgage insurance premium. So, if the interest rate on your reverse mortgage is 4%, then your line of credit will grow at 4.5% (4% + 0.5%). This growth is unique to reverse mortgage lines of credit — a HELOC for example does not grow.
  • Hedge against falling house prices: The growth in a reverse mortgage line of credit is guaranteed — without withdrawals, your line of credit is guaranteed to grow.

This feature can be an interesting hedge against the potential of falling home prices. If you think home prices will be stagnant or potentially fall, then a reverse mortgage line of credit allows you to lock in the current value of your home and continue to see your assets grow.

And you (or your heirs) will never have to pay back more than the home is worth.

Pro: Reverse mortgages are still available, whereas HELOCs are harder to get

A happy senior smiles
Viktoriia Hnatiuk /

Home equity lines of credit (HELOCs), which function as a cross between a home equity loan and a credit card, are currently difficult to secure. Banks are limiting access to these loans.

As of now, reverse mortgages are relatively widely available to eligible homeowners.

Pro: All of the other advantages of a reverse mortgage still apply

Senior couple
Monkey Business Images /

The main advantage of reverse mortgages is that you can eliminate your traditional mortgage payments and access your home equity while still owning and living in your home.

In good economic times and bad, the key advantages and benefits of reverse mortgages include:

  • Flexibility: Use the money any way you want or need.
  • Little downside: With a reverse mortgage you will never owe more than your home’s value at the time the loan is repaid, even if the reverse mortgage lenders have paid you more money than the value of the home. This is a particularly useful advantage if you secure a reverse mortgage and then home prices decline.
  • Tax-free: As a reverse mortgage is a loan, the money from it is typically tax-free, whether you receive it as fixed income or in a lump sum.
  • Federally insured: The Home Equity Conversion Mortgage (HECM) is the most widely available reverse mortgage. It is managed by the Department of Housing and Urban Affairs and is federally insured. This is important, since even if your reverse mortgage lender defaults, you’ll still receive your payments.
  • Proprietary options: For higher value homes, there are several “jumbo” options available with higher lending limits and alternative fee structures.

Con: High fees

A senior couple is surprised
WAYHOME studio /

The upfront fees (closing and insurance costs and origination fees) for a reverse mortgage are considered by many to be somewhat high — higher than the costs charged for refinancing, for example.

However, the fees can be financed by the reverse mortgage itself, so there are options to avoid “out-of-pocket” expenses at closing.

Get more information on reverse mortgage rates and fees.

Con: Accumulating interest

Senior woman with no money
rayjunk /

There are no monthly payments on a reverse mortgage. As such, the loan amount — the amount you will eventually have to pay back — grows larger over time. Every month, the amount of interest you will eventually owe increases. However, the amount you owe on the loan will never exceed the value of the home when the loan becomes due.

Most reverse mortgage borrowers appreciate that you don’t have to make monthly payments and that all interest and fees are financed into the loan.

These features can be seen as reverse mortgage disadvantages, but they are also huge advantages for those who want to stay in their home and improve their immediate finances at their future expense.

Con: Not enough cash can be tapped

An old man holding an empty wallet
Motortion Films /

If you have a lot of home equity, you might be frustrated that a reverse mortgage only enables you to use some of it.

The HECM loan limit is currently set at $765,600, meaning the amount you can borrow is based on this value even if your home is valued for more. If your home is valued above this limit, then you may want to inquire about one of the “jumbo” proprietary options available.

Your actual loan amount is determined by a calculation that uses the appraised value of your home (or the lending limit above, whichever is less), the amount of money you owe on the home, your age and current interest rates.

Con: Reverse mortgages seem complicated

A surprised senior couple looks at a document
LightField Studios /

A reverse mortgage is a mortgage in reverse — that can be hard to get your head around.

With a traditional mortgage, you borrow money up front and pay the loan down over time. A reverse mortgage is the opposite — you accumulate the loan over time and pay it all back when you and your spouse (if applicable) are no longer living in the home. Any equity remaining at that time belongs to you or your heirs.

The basics of reverse mortgages can seem so foreign to people that it has actually taken many financial advisers and personal finance gurus some time to understand the product.

Many experts shunned the product early on, thinking that it was a bad deal for seniors — but as they have learned about the details of reverse mortgages, experts are now more willing to embrace it as a financial planning tool.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.


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