The 10 Most and Least Tax-Friendly States in the US

The state where you live impacts your day-to-day life in many ways. It affects the food you eat, the places you visit, the weather you experience, the healthcare you receive, and even your overall quality of life. Where you live can also impact your finances, especially when it comes to taxes.

State taxes can decide your take-home income, whether during your working years or during retirement. They also affect the cost of buying a home or making everyday purchases. This is why it is important to understand which states are the most and least tax-friendly.

While you may not always have the option to choose where you live during your working years, retirement can offer you more freedom to relocate. And when you are finally at a stage where you can decide where you live, choosing a tax-friendly state can help reduce expenses and make your retirement savings last longer.

Let’s take a look at some of the best states to retire in for taxes as well as the least in the US, and see how taxes can influence your retirement decisions.

Below are a few of the most tax-friendly states for retirees:

1. Wyoming

Wyoming takes the top spot as the most tax-friendly state for retirement overall. The state shows exceptional performance in both the corporate tax and individual income tax ranks, ranking 1st in the nation. Wyoming also performs well in sales taxes, ranking 6th. While its property tax rank of 37 may not seem as impressive, the state’s overall tax structure remains one of the most attractive in the country. It can be a good place to reside, not only for retirees but also for entrepreneurs and investors.

2. South Dakota

South Dakota follows closely behind Wyoming with an overall rank of 2. The state ranks 1st in corporate and individual income taxes. South Dakota’s property tax rank of 8 is another strong point. If you hold property or would like to invest in real estate, this can be a good thing, as your tax burden would be relatively low. Its sales tax rank of 31 is moderate, but it does little to diminish the state’s overall appeal. Without a doubt, South Dakota remains one of the best states to retire in for taxes.

3. New Hampshire

New Hampshire ranks 3rd overall. The state ranks 1st in individual income tax and 1st in sales tax. However, New Hampshire’s corporate tax rank of 37 is considerably weaker. So, if you are running a business, you will likely face a less favorable tax environment than in some other states. The state also ranks 44th in property taxes. And, this is one of the lowest rankings among the top ten states on this list. Even with these challenges, New Hampshire’s advantages in income and sales taxation make it stand out.

4. Alaska

Alaska has an impressive overall rank of 4. The state performs remarkably well in individual income tax, ranking 1st. Alaska offers an extreme geography with a harsh climate, but it also makes for an attractive retirement destination for anyone looking to reduce their tax burden. The state scores high in sales tax, with a rank of 5. However, its corporate tax rank is a bit low at 35. The state ranks 31st in property taxes. Despite varying ranks across categories, Alaska maintains a top-five overall position.

5. Florida

Florida ranks 5th overall, giving it a reputation as one of the best states to retire in for taxes. The state performs exceptionally well in individual income tax, ranking 1. This advantage has long been a major draw for retirees. Florida also ranks 17th in corporate tax, 16th in sales tax, and 20th in property tax. Taken together, Florida offers a balanced tax treatment in most categories. Along with its sunny weather, the state maintains its popularity.

6. Montana

Montana ranks 6th overall, with a corporate tax rank of 24 and a sales tax rank of 3. Its property tax rank of 17 also contributes positively to its overall tax competitiveness. Montana’s rank of 12 in individual income tax is also impressive. While Montana may not dominate any single category the way Wyoming or South Dakota do, it does have favorable tax rates and rules that make it a good retirement destination.

7. Texas

Texas ranks 7th overall but 1st in individual income tax. However, Texas ranks 46th in corporate tax. The state also ranks 36th in sales taxes and 38th in property taxes, both of which weigh down its overall score.

8. Tennessee

Tennessee takes the 8th spot overall. Like several other states in the top ten, it earns a perfect individual income tax rank of 1. However, Tennessee’s corporate tax rank of 48 is among the weakest of all states. The state also ranks 47th in sales taxes. Tennessee performs reasonably well in property taxes, ranking 32nd.

9. Idaho

Idaho secures the 9th overall rank. The state ranks 21st in corporate taxes and 14th in individual income taxes. Idaho also performs particularly well in sales taxes, where it ranks 8th, and in property taxes, where it ranks 3rd.

10. Indiana

Indiana is last on the list with an overall rank of 10. The state performs especially well in corporate taxes, ranking 7th. Indiana also earns respectable rankings in individual income taxes (20th) and sales taxes (14th). One of its strongest areas is property taxes, where it secures an impressive rank of 4. If you like the Midwest, Indiana can be a good choice.

Below are some of the least tax-friendly states:

50. New York

Despite its popularity worldwide, New York ranks 50th overall, making it the least tax-friendly state in the country. It has an average corporate tax rank of 28. But it is more or less downhill for the state from here on. It ranks 50th in individual income taxes. New York also performs poorly in sales taxes (42nd) and property taxes (47th).

49. New Jersey

New Jersey comes in 49th overall, making it the second-least tax-friendly state in the country. The state struggles in almost every major category. It has a corporate tax rank of 44 and an individual income tax rank of 48. Its sales tax rank of 34 is slightly better but still below average. New Jersey’s property tax rank of 42 is another major weakness, as the state is well known for having some of the highest property taxes in the nation. Taken together, these rankings place New Jersey near the bottom of the list.

48. California

California shares an overall rank of 48. The state receives a corporate tax rank of 41 and an extremely poor individual income tax rank of 49. So, if you plan to retire here, you will have to carry a personal income tax burden, which can severely impact your savings. California also ranks 46th in sales taxes. Its property tax rank of 27 is comparatively better. However, even then, California’s tax structure is towards the poorer end of the list and contributes significantly to its low overall ranking.

47. Connecticut

Connecticut ranks 47th overall. The state earns a respectable corporate tax rank of 30, but this is not enough to offset its performance in the rest of the category, where it performs rather poorly. Connecticut ranks 46th in individual income taxes. While its sales tax rank of 19 is one of its stronger areas, the state struggles heavily with property taxes, where it ranks 49th, one of the worst scores in the nation.

46. Maryland

Maryland holds the 46th overall rank. The state ranks 36th in corporate taxes and 47th in individual income taxes, which can be challenging for residents, as they would end up paying a high tax. Maryland’s sales tax rank of 40 further weighs it down on the list. It performs somewhat better in property taxes, earning a rank of 36. Even with this relatively positive ranking, Maryland is weak on the income and sales taxation scale.

45. Washington

Washington ranks 45th overall. The state performs poorly in corporate taxes, ranking 47th. It also struggles quite a bit in sales taxes, where it ranks 49th. On the other hand, Washington fares somewhat better in individual income taxes, with a rank of 31, and property taxes, where it ranks 25th. While these categories help improve its position slightly, the state remains on the list of the 10 least tax-friendly states in the country.

44. Minnesota

Minnesota secures the 44th overall rank. The state ranks 43rd in corporate taxes and 44th in individual income taxes. Its sales tax rank of 35 is also below average. Minnesota performs somewhat better on property taxes, ranking 23rd, but its overall tax structure remains less favorable than that of higher-ranked states.

43. Massachusetts

Massachusetts ranks 43rd overall. The state has a corporate tax rank of 33 and an individual income tax rank of 42, both of which place it below the national average. Massachusetts performs reasonably well in sales taxes, ranking 22nd, but struggles significantly with property taxes, ranking 48th.

42. Vermont

Vermont comes in at 42nd overall. The state ranks 38th in corporate taxes and 39th in individual income taxes. Vermont’s sales tax rank of 30 is close to the national midpoint, but its biggest weakness lies in property taxes, where it ranks 50th, the lowest possible score. While Vermont remains one of the country’s best holiday destinations, it may not be the most tax-friendly state for retirement.

41. Hawaii

Hawaii ranks 41st overall, so while it fares well compared to other lower-ranked states, it is still far from being among the best states. The state performs relatively well in corporate taxes, earning a rank of 27, and achieves a respectable property tax rank of 15, one of its strongest categories.
However, Hawaii struggles with individual income taxes, ranking 45th. The state also ranks 29th in sales tax. While Hawaii performs better than some of the states below it, its overall tax structure remains less favorable than that of other states.

Retirement taxes by state

Selecting the best states to retire in for taxes

The choice of where to retire should be based on several factors, with taxes being just one of them. While it certainly matters how your income is taxed and where you pay those taxes, they should not be the sole basis for your decision. You should also consider factors such as proximity to family and friends, access to quality healthcare, and the overall lifestyle the state offers. Social activities and climate also play an important role in your decision.

In addition, consider the state’s cost of living. You will have several expenses in retirement, such as housing, groceries, transportation, and long-term care. These can impact your retirement budget. A state with low taxes may not necessarily be the most affordable option if other living costs are high. Working with a financial advisor can help you evaluate these factors. Consider using our advisor directory to connect with experienced financial professionals in your state and make a more informed decision.

Frequently Asked Questions (FAQs) about tax-friendly states for retirement

1. What do I do if I live in one of the least tax-friendly states?

If you live in one of the least tax-friendly states, there are still ways to manage your tax burden. You can speak with a financial advisor about strategies such as using available tax credits and deductions, optimizing your retirement withdrawals, and improving overall tax efficiency.

You may also consider tax-advantaged accounts and investments, such as Roth Individual Retirement Accounts (IRAs) or 401(k)s. Roth accounts provide tax-free withdrawals in retirement if certain conditions are met.

Additionally, if relocating is a realistic option, you may also consider moving to a state with a more favorable tax environment.

2. Do taxes affect the longevity of your savings?

Yes, they do. The more taxes you pay on your income, investments, and withdrawals, the less money you have available for your retirement needs. On the other hand, if you pay less in taxes, you can potentially make your retirement nest egg last longer.

3. What is the best and least tax-friendly state?

Wyoming is considered one of the most tax-friendly states, whereas New York is among the least tax-friendly states because of its higher state and local taxes.