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Tax-Friendly States

36 states (and D.C.) offer some relief; 2 pull out the stops

by Carole Fleck, AARP The Magazine, Updated June 2015

Taxes can be a big burden to a retiree on a fixed income. But they don't have to be: Most states offer some form of relief from the tax man.

• The tax trifecta: Alaska and New Hampshire levy no tax on sales, income or Social Security. Alaska offers another bonus to residents: an annual cash payment from royalties on the state's vast oil deposits. In 2013 the Alaska Permanent Fund Dividend was $900.

• Seven decent sanctuaries: Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming have sales taxes but don't impose state income taxes, or levies on Social Security and pension income.

• Three shopping shelters: Delaware, Montana and Oregon do not have a sales tax.

• Friends of retirees: Income from Social Security gets a pass in 36 states and Washington, D.C.; Iowa will join the club this year.

• The fine print: A number of states have other levies, such as taxes on interest and dividends (New Hampshire and Tennessee), big sales taxes (New York and Arizona) or high property taxes (New Jersey and Connecticut). So consult a financial adviser before pulling up stakes for the haven of your dreams.

This article originally appeared in the June/July 2014 issue of AARP the Magazine.