I have been thinking about that question for quite some time. It’s not an easy question to answer because there are so many variables and everyone has different priorities. I know some people that love being near National Parks so they move to states that have them. Others I know love being in large metro cities that offer the best variety of dining, entertainment, culture and amenities.
But since this is a personal finance blog, I developed a table to focus on the taxation aspect of retiring in any particular state. The data I collected includes state sales tax, property tax, income tax and taxation of social security benefits. Tax laws change yearly so this data is from 2023 or slightly older.
| State | State Sales Tax Rate | Avg. Local Tax Rate | Combined Rate | Max Local Tax Rate | Property Tax | Income Tax rates | # of brackets | Lowest and highest tax bracket (income) | Taxes Social Security Income |
|---|---|---|---|---|---|---|---|---|---|
| Alaska | 0.00% | 1.813% | 1.813% | 7.50% | $ 2,278 | Does not have state income tax. | N | ||
| Florida | 6.00% | 1.019% | 7.019% | 2.00% | $ 1,547 | Does not have state income tax. | N | ||
| Nevada | 6.85% | 1.386% | 8.236% | 1.53% | $ 1,165 | Does not have state income tax. | N | ||
| New Hampshire | 0.00% | 0.000% | 0.000% | 0.00% | $ 3,328 | Does not have state income tax. | 4% flat tax on dividends and interest income only. | N | |
| South Dakota (b) | 4.20% | 1.908% | 6.108% | 4.50% | $ 1,610 | Does not have state income tax. | N | ||
| Tennessee | 7.00% | 2.548% | 9.548% | 2.75% | $ 856 | Does not have state income tax. | N | ||
| Texas | 6.25% | 1.948% | 8.198% | 2.00% | $ 2,233 | Does not have state income tax. | N | ||
| Washington | 6.50% | 2.897% | 9.397% | 4.10% | $ 1,750 | Does not have state income tax. | 7% long-term capital gains tax on profits of $250,000 or more. | N | |
| Wyoming | 4.00% | 1.441% | 5.441% | 2.00% | $ 2,157 | Does not have state income tax. | N | ||
| Maine | 5.50% | 0.000% | 5.500% | 0.00% | $ 2,900 | 5.8%-7.15%. | 3 | $24,500-$58,050. | N |
| Idaho | 6.00% | 0.021% | 6.021% | 3.00% | $ 1,168 | 5.8%. | Flat rate. | N | |
| Minnesota | 6.88% | 0.648% | 7.523% | 2.00% | $ 1,797 | 5.35%-9.85%. | 4 | $30,070-$183,341. | Y |
| Massachusetts | 6.25% | 0.000% | 6.250% | 0.00% | $ 2,687 | 5%-9%. | 2 | $8,000–$1,000,000. | N |
| Illinois | 6.25% | 2.588% | 8.838% | 4.75% | $ 2,288 | 4.95%. | Flat rate. | N | |
| Oregon | 0.00% | 0.000% | 0.000% | 0.00% | $ 1,739 | 4.75%-9.9%. | 4 | $4,050-$125,000. | N |
| North Carolina | 4.75% | 2.246% | 6.996% | 2.75% | $ 1,078 | 4.75%. | Flat rate. | N | |
| Utah (a) | 6.10% | 1.098% | 7.198% | 4.20% | $ 1,237 | 4.65%. | Flat rate. | Y | |
| Kentucky | 6.00% | 0.000% | 6.000% | 0.00% | $ 915 | 4.5%. | Flat rate. | N | |
| Iowa | 6.00% | 0.934% | 6.934% | 1.00% | $ 1,825 | 4.4%-6%. | 4 | $6,000-$75,000. | N |
| Colorado | 2.90% | 4.891% | 7.791% | 8.30% | $ 1,964 | 4.4%. | Y | ||
| Michigan | 6.00% | 0.000% | 6.000% | 0.00% | $ 1,606 | 4.05%. | Flat rate. | N | |
| New York | 4.00% | 4.532% | 8.532% | 4.88% | $ 3,230 | 4%-10.9%. | 9 | $8,500-$25,000,000. | N |
| D.C. | 6.00% | 0.000% | 6.000% | 0.000% | 4%-10.75%. | 7 | $10,000-$1,000,000. | N | |
| Rhode Island | 7.00% | 0.000% | 7.000% | 0.00% | $ 2,534 | 3.75%-5.99%. | 3 | $73,450-$166,950. | Y |
| Wisconsin | 5.00% | 0.429% | 5.429% | 1.75% | $ 1,738 | 3.5%-7.65%. | 4 | $13,810-$304,170. | N |
| Vermont | 6.00% | 0.359% | 6.359% | 1.00% | $ 2,944 | 3.35%-8.75%. | 4 | $45,400-$229,500. | Y |
| Indiana | 7.00% | 0.000% | 7.000% | 0.00% | $ 1,155 | 3.15%. | Flat rate. | N | |
| Kansas | 6.50% | 2.250% | 8.750% | 4.25% | $ 1,725 | 3.1%-5.7%. | 3 | $15,000-$30,000. | Y |
| Pennsylvania | 6.00% | 0.341% | 6.341% | 2.00% | $ 1,668 | 3.07%. | Flat rate. | N | |
| Connecticut | 6.35% | 0.000% | 6.350% | 0.00% | $ 3,327 | 3%-6.99%. | 7 | $10,000-$500,000. | Y |
| Arizona | 5.60% | 2.771% | 8.371% | 5.30% | $ 1,189 | 2.5%. | Flat rate. | N | |
| Nebraska | 5.50% | 1.471% | 6.971% | 2.00% | $ 2,116 | 2.46%-6.64%. | 4 | $3,700-$35,730. | Y |
| West Virginia | 6.00% | 0.566% | 6.566% | 1.00% | $ 1,000 | 2.36%-5.12%. | 5 | $10,000-$60,000. | Y |
| Maryland | 6.00% | 0.000% | 6.000% | 0.00% | $ 1,781 | 2%-5.75%. | 8 | $1,000-$250,000. | N |
| Virginia (a) | 5.30% | 0.467% | 5.767% | 2.70% | $ 1,851 | 2%-5.75%. | 4 | $3,000-$17,001. | N |
| Alabama | 4.00% | 5.237% | 9.237% | 7.50% | $ 647 | 2%-5%. | 3 | $500-$3,001. | N |
| Louisiana | 4.45% | 5.097% | 9.547% | 7.00% | $ 914 | 1.85%-4.25%. | 3 | $12,500-$50,001. | N |
| New Mexico (b) | 4.88% | 2.726% | 7.601% | 4.06% | $ 907 | 1.7%-5.9%. | 5 | $5,500-$210,000. | Y |
| Hawaii (b) | 4.00% | 0.443% | 4.443% | 0.50% | $ 1,595 | 1.4%-11%. | 12 | $2,400-$200,000. | N |
| New Jersey (d) | 6.63% | -0.024% | 6.601% | 3.31% | $ 3,584 | 1.4%-10.75%. | 7 | $20,000-$1,000,000. | N |
| Montana (c) | 0.00% | 0.000% | 0.000% | 0.00% | $ 1,835 | 1%-6.75% | 7 | $3,600-$21,600. | Y |
| Georgia | 4.00% | 3.394% | 7.394% | 5.00% | $ 1,349 | 1%-5.75%. | 6 | $750-$7,001. | N |
| California (a) | 7.25% | 1.601% | 8.851% | 4.75% | $ 1,954 | 1%-12.3%. | 9 | $10,099-$677,275. | N |
| Oklahoma | 4.50% | 4.486% | 8.986% | 7.00% | $ 884 | 0.25%-4.75%. | 6 | $1,000-$7,200. | N |
| Delaware | 0.00% | 0.000% | 0.000% | 0.00% | $ 1,069 | 0%-6.6%. | 7 | $2,000-$60,001. | N |
| South Carolina | 6.00% | 1.499% | 7.499% | 3.00% | $ 1,309 | 0%-6.4%. | 3 | $3,200-$16,040. | N |
| Mississippi | 7.00% | 0.062% | 7.062% | 1.00% | $ 1,159 | 0%-5%. | 2 | $10,001 and over is subject to a 5% flat rate. | N |
| Missouri | 4.23% | 4.137% | 8.362% | 5.88% | $ 1,116 | 0%-4.95%. | 8 | $1,207-$8,449. | Y |
| Arkansas | 6.50% | 2.943% | 9.443% | 6.13% | $ 796 | 0%-4.7%. | 5 | $5,100-$87,000. | N |
| Ohio | 5.75% | 1.488% | 7.238% | 2.25% | $ 1,470 | 0%-3.75%. | 4 | $26,050-$115,300. | N |
| North Dakota | 5.00% | 2.038% | 7.038% | 3.50% | $ 1,572 | 0%-2.5%. | 3 | $44,775-$225,975. | N |
State Sales Tax
The states with the highest max state sales tax are: Colorado (8.3%); Alabama (7.5%); Alaska (7.5%); Louisiana (7.0%); Oklahoma (7.0%).
The states with the lowest state sales tax are: New Hampshire; Oregon; Montana and Delaware. All of which are zero percent.
State Property Tax
The states with the highest property tax are: New Jersey; New Hampshire; Connecticut; New York; Vermont and Maine.
The states with the lowest property tax are: Alabama; Arkansas; Tennessee; Oklahoma; New Mexico.
State Income Tax
The states with the highest state income tax are: Maine; Idaho; Minnesota; Illinois; Massachusetts; Oregon
State Taxation of Social Security
The states that tax social security are: Minnesota; Utah; Colorado; Rhode Island; Vermont; Kansas; Connecticut; Nebraska; West Virginia; New Mexico; Montana; Missouri
The remaining states do not tax social security as of 2023.
What Tax Matters The Most?
As usual, it depends. I have a fairly high income level so avoiding state income tax is a high priority for me. I have lived in states that have state income tax and currently have my primary residence in a state with no state income tax and I much prefer not to have to pay state income tax.
Personally, when I lived in states with state income tax, I paid anywhere from $5000 to $7000 in state income tax and saw no incremental benefits over living in a state with NO state income tax. My property taxes in my no state income tax state are LOWER than the state income tax in the states I used to live in. For me it’s a win to leave states that tax income even with higher property taxes.
Property taxes in the state I live in are a bit high but I am fortunate that I choose to live in a non McMansion and have relatively low property tax compared to others. I have friends that pay $15k to $20k for their McMansions and I’d be upset if I had to flush that kind of money down the proverbial toilet.
Sales tax is important for day to day living. Aside from groceries, utilities and personal expenses, I don’t intend on making any large purchases in my retirement so I’m not considering this as important as income and property taxes.
Lastly, while I won’t need to rely on social security in retirement, I am concerned that whatever money I do receive will be taxed at a very high rate. State laws vary and are a bit quirky as some are dependent on your income levels and since I’m at a high income level, I assume my social security tax will be high. I do intent on avoiding states that tax social security and have high state income tax.
Or to put it more simply, I am targeting states that have no state or social security taxes and have low to moderate property taxes. The states at the top of my list are: Texas, Tennessee, Washington, Florida, and Nevada.