There are many factors to consider when deciding where to retire. Income tax happens to be one of those factors. There are seven states that do not tax personal income. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee assesses a tax on only interest and dividends. Illinois, Mississippi and Pennsylvania do not tax Social Security or retirement income, whether private or public. There are also many states that exclude a portion of your retirement income. 

Not everyone, however, can or will retire in low-tax states. There are many reasons for this. A primary motivation for staying put has to do with your immediate and extended family as well as the close friendships that enhance the quality of your life. So let's go through a brief overview of state by state taxation of retiree income:

Alabama
Tax rates range from 2% - 5%. Expect your effective tax rate to be close to 5%. Social Security, military, civil service, government and certain private pensions are exempt. 

Arizona
Tax rates range from 2.59% - 4.54%. Expect your effective rate to be close to 3.5%. Social Security is exempt. Up to $2,500 of military, civil service and Arizona state & local government pensions are exempt. All out-of-state government pensions are taxed.

Arkansas
Tax rates range from 1% - 7%. Expect your effective tax rate to be close to 5%. Social Security is exempt. Up to $6,000 of military, civil service, state & local government and private pension are exempt.

California
Tax rates range from 1% to 10.3% and are scheduled to increase. Expect your effective tax rate to be close to 6%. Social Security is exempt. All other retirement income is taxable. 

Colorado
Tax rates are set at 4.63%. Up to $20,000 of Social Security and retirement income is exempt. Those 65 and older can exclude up to $24,000 of Social Security and retirement income.

Connecticut
Tax rates range from 3% - 5%. Expect your effective tax rate to be close to 5%. Social Security is exempt as long as your federal adjusted gross income is below $60,000. Out-of-state government and federal civil service pensions are fully taxable.

Delaware
Tax rates range from 2.2% - 5.95%. Expect your effective rate to be close to 5%. Social Security is fully exempt. Taxpayers 60 and older can exclude $12,500 of investment and pension income. 

Georgia
Tax rates range from 1% - 6%. Expect your effective tax rate to be close to 6%. Social Security is exempt. Other private and public pensions are taxable to the extent they exceed $35,000.

Hawaii
Tax rates range from 1.4% - 8.25%. Expect your effective tax rate to be close to 7%. Social Security, military, federal, stte/local and some private pensions are exempt. 

Idaho
Tax rates range from 1.6% - 7.8%. Expect your effective tax rate to be close to 7%. Social Security is exempt. Taxpayers may receive a partial tax exemption for civil service and military retirement income received after age 65. Out-of-state government pensions are fully taxed.

Illinois
Tax rate is a flat 3% of federal adjusted gross income. Social Security is exempt as are most retirement income distributions.

Indiana
Tax rate is a flat 3.4% of federal adjusted gross income. Social Security is exempt. Taxpayers 62 and older may exclude $2,000 from military pensions. Out-of-state pensions are fully taxable.

Iowa
Tax rates range from .36% to 8.98%. Expect your effective tax rate to be close to 6.5%. Social Security is taxable in a manner similar but not identical to the federal calculation. Iowa is gradually phasing out taxation of Social Security. Up to $6,000 of retirement income is exempt if you are single. If you are married, up to $12,000 is exempt.

Kansas
Tax rates range from 3.5% - 6.45%. Expect your effective tax rate to be close to 6%. Military, civil service, state/local government pensions are exempt.  Out-of-state government pensions are fully taxed.  Social Security is exempt for residents with a federal adjusted gross income of $75,000 or less.

Kentucky
Tax rates range from 2% - 6%.Expect your effective tax rate to be close to 6%. Social Security, Railroad Retirement benefits, and Roth IRA proceeds are exempt.  Exclusion of up to $41,110 for military, civil service, state/local government, qualified private pensions, and annuities.  

Louisiana
Tax rates range from 2% - 6%. Expect your effective tax rate to be close to 4%. Social Security, military, civil service, state/local government pensions are exempt. Persons 65 years or older may exclude up to $6,000 of annual retirement income from their taxable income. Taxpayers that are married filing jointly and are both age 65 or older can each exclude up to $6,000 of annual retirement income. If only one spouse has retirement income, the exclusion is limited to $6,000. Federal retirement benefits received by federal retirees, both military and nonmilitary, may be excluded from Louisiana taxable income.  Out-of-state government pensions qualify for the private pension/retirement exemption. 
 
Maine
Tax rate is a flat 6.5% with a .35% surtax on taxable income in excess of $250,000.  You and your spouse (if married) may each deduct up to $6,000 of eligible Social Security and pension income that is included in your federal adjusted gross income.  Except for military pension benefits, the $6,000 cap must be reduced by any Social Security and Railroad Retirement benefits received, whether taxable or not.  Deductible pension income includes state, federal and military pension benefits, as well as retirement benefits received from employee retirement plans.

Maryland
Tax rates range from 2% - 6.25%. Expect your effective tax rate to be close to 5%. Social Security and Railroad Retirement income are not taxed.  If you are 65 or older or totally disabled (or your spouse is totally disabled), you may qualify for Maryland's maximum pension exclusion of $23,600 under certain conditions. Out-of-state government pensions do not qualify for the exemption.

Massachusetts
Tax rate is a flat 5.3%. Social Security, civil service, state/local government pensions are exempt.  Pension income from other state or local governments that do not tax pension income from Massachusetts public employees is exempt from Massachusetts taxable income.

Michigan
Tax rate is a flat 4.35%. Social Security, military, federal, and state/local government pensions are exempt.  Private pension income is exempt up to $43,440 (individual filers) or $86,880 (married filing jointly).  These private pensions are reduced by the amount of any public pension deduction claimed.

Minnesota
Tax rates range from 5.35% - 7.85%. Expect your effective tax rate to be close to 6%. Social Security income is taxed by Minnesota to the same extent it is on your federal return. Pensions, including federal pensions, received while a Minnesota resident are taxable by Minnesota regardless of where your pension was earned.

Mississippi
Tax rates range from 3% - 5%. Expect your effective tax rate to be close to 5%. Qualified retirement income is exempt from state income tax.  Social Security is not taxed, regardless of total income.  Retirement income from IRAs, 401(k)s/403s, Keoghs and qualified public and private pension plans is not taxable.

Missouri
Tax rates range from 1.5% to 6%. Expect your effective tax rate to be close to 6%. Missouri resident taxpayers are allowed a state income tax deduction for Social Security benefits received by individuals 62 years of age or older, Social Security disability benefits, and non private retirement system benefits received by individuals 62 years of age or older, to the extent these benefits are included in federal adjusted gross income. 

Montana
Tax rates range from 1% - 6.9%. Expect your effective tax rate to be close to 6%. Montana taxes all pension and retirement income received while residing in Montana to the extent it is taxable on the federal return. The state allows a pension and annuity income exemption of up to $3,600 per individual, if certain income limitations are met.  Early distributions from an IRA do not qualify for this exemption.  Social Security benefits taxable in Montana may be different from what is taxable federally.

Nebraska
Tax rates range from 2.56% - 6.84%. Expect your effective tax rate to be close to 5%. Out-of-state government pensions are fully taxed.  Social Security is taxable to the extent of federal taxation.

New Jersey
Tax rates range from 1.4% - 10.25%. Expect your effective tax rate to be close to 2.25%. Social Security is exempt. The state provides several income exclusions to enable residents to reduce their taxable income.  These exclusions can be used every year you qualify.  Persons 62 or older may use the Pension Exclusion to exclude all or part of their taxable pensions, annuities, and IRA withdrawals provided their gross income for the entire year before  subtracting any pension does not exceed $100,000.  The maximum amount excluded depends on your filing status.  If married and filing a joint return, you may exclude up to $20,000.  If you file as single, head of household, or qualifying widow or widower, you may exclude up to $15,000.  If you are married, filing a separate return, you may exclude up to $10,000.  If you file a joint return, and both you and your spouse qualify for the Pension Exclusion, you may apply the exclusion to the total taxable pension amount on your return.  However, if only one spouse is age 62 or older or disabled, then only the income of the spouse who is age 62 or older or disabled any be excluded.

New Mexico
Tax rates range from 1.7% - 4.9%. Expect your effective tax rate to be close to 4.9%. Taxpayers 65 and older may exempt up to $8,000 (single), $16,000 (joint) from any income source, including Social Security, if their income is under $28,500 (individual filers) or $51,000 (married filing jointly).

New York
Tax rates range from 4% - 8.97%. Expect your effective tax rte to be close to 6.5%. Social Security, military, civil service, New York state/local government pensions are exempt.  Also, up to $20,000 of qualified private pensions for those 59½ and older.  Out-of-state government pensions can be deducted as part of the $20,000 exemption,

North Carolina
Tax rates in North Carolina are going up. Current tax rates range from 6% - 7.75% but higher rates are slated for those with income in excess of $80,000. Expect your effective tax rate to be close to 7%, a very high rate. Social Security is exempt.  At least $4,000 in exclusions for federal, state and local pensions (depending on dates and length of service); up to $2,000 exemption for qualified private pensions, including IRAs.  Out-of-state government pensions also qualify for the $4,000 exemption.  State  retirees with at least 5 years of creditable service as of August 12, 1989, will be permanently exempt from state income tax on their retired pay.

North Dakota
Tax rates range from 1.84% - 4.86%. Expect your effective tax rate to be close to 3%. A total of $5,000 can be excluded from military, civil service, some state/local government, and qualified pensions, minus amount of Social Security received.  Out-of-state government pensions are fully taxed.Social Security is taxable.

Ohio
Tax rates range from .587% - 5.925%. Expect your effective tax rate to be close to 3.5%. Social Security is exempt. A credit of up to $200 is allowed if retirement income is at least $500. There is also a one-time credit on lump sums. Seniors age 65 and over may claim a $50 credit.  Only one credit is allowed for each return. Out-of-state government pensions can be applied toward the retirement income credit.

Oklahoma
Tax rates range from .5% - 5.5%. Expect your effective tax rate to be close to 5.5%. Social Security benefits that are included in the Federal Adjusted Gross Income are subtracted on your Oklahoma taxable income.  Each individual may exclude a percentage (60% in 2009) of their retirement benefits received from the Civil Service Retirement System (CSRS), including survivor benefits, paid in lieu of Social Security, to the extent such benefits are included in the Federal Adjusted Gross Income. Retired military personnel may exclude 75% of their retirement benefits beginning in tax year 2007 or $10,000, which is greater, but not to exceed the amount included in the Federal Adjusted Gross Income.  Individuals with Oklahoma Government or Federal Civil Service Retirement Income may exclude their retirement benefits, up to $10,000, but not to exceed the amount included in the Federal Adjusted Gross Income. Individuals with other retirement income may exclude their retirement benefits, up to $10,000, but not to exceed the amount included in the Federal Adjusted Gross Income.

Oregon
Tax rates range from 5% - 11%. Expect your effective tax rate to be close to 9%, which is a very high rate. Generally, retirement income is subject to Oregon tax. You may, however, subtract some pensions on your Oregon return that were taxed on your federal return. Pensions not taxed are Social Security benefits, Veterans Administration benefits and Railroad Board benefits. Oregon allows a subtraction for part or all of the payments you receive from the federal pension system.  A tax credit of up to 9% of taxable pension income is available to recipients of pension income, including most private pension income, whose household income was less than $22,5000 (single) and $45,000 (joint), and who received less than $7,500/$15,000 in Social Security or Railroad Retirement benefits.  The credit is the lesser of tax liability or 9% of taxable pension income.

Pennsylvania
Tax rate is flat at 3.07%, however, some localities assess a 1% tax on earned income. Pennsylvania fully exempts all public and private pensions from taxation. Pennsylvania is a very retiree-friendly state.

Rhode Island
Tax rates range from 3.75% - 9.9%. Expect your effective tax rate to be close to 7%, very high. Out-of-state government pensions are fully taxed.  Social Security is taxed to the extent it is federally taxed.

South Carolina
Tax rates range from 3% - 7%. Expect your effective tax rate to be close to 7%. Retirement income is taxed. Social Security exempt.  You can take this deduction for income received from any qualified retirement plan.  If both spouses receive retirement income, each spouse is entitled to an individual deduction.  At 65, the deduction is $15,000.  The $15,000 deduction must be offset by any other retirement deduction that is claimed. 

Tennessee
Salaries, wages, Social Security, IRAs and pension income are not taxed.  A 6% tax is levied on stock dividends and interest from bonds and other obligations. The first $1,250 in taxable income received by a single filer is exempt ($2,500 for joint filers).

Utah
Tax rate is flat at 5%. Each taxpayer who was age 65 or older at the end of the tax year may be entitled to a retirement exemption of up to $7,500.  A married couple filing a joint return may claim up to $15,000, if they are both 65 or older, depending on their income.

Vermont
Tax rates range from 3.55% - 9.4%. Expect your effective tax rate to be close to 4.5%. Vermont taxes all retirement income including Social Security. Railroad retirement benefits are not taxable.

Virginia
Tax rates range from 2% - 5.75%. Expect your effective tax rate to be close to 5.5%. Taxpayers age 65 and older are eligible for a deduction of $12,000 from all retirement income, including Social Security, subject to the following income limitations.  The deduction of $12,000 will be reduced by one dollar for each dollar that their Adjusted Federal Adjusted Gross Income exceeds the following thresholds: single - $50,000, married - $75,000 (total for both), married filing separately - $75,000 (total for both). 

West Virginia
Tax rates range from 3% - 6.5%. Expect your effective tax rate to be close to 4%. The beginning point for West Virginia taxation is federal adjusted gross income.  Therefore, any amount of the IRA distribution or pension income that is taxable and included in federal adjusted gross income is taxable on the West Virginia income tax return.  $2,000 of civil, and state pensions are exempt.  Social Security income is taxable only to the extent that the income is included in your federal adjusted gross income. Taxpayers 65 and older or surviving spouses of any age may exclude the first $8,000 (individual filers) or $16,000 (married filing jointly) of any retirement income.  Out-of-state government pensions qualify for the $8,000 exemption.

Wisconsin
Tax rates range from 4.6% - 7.75% Expect your effective tax rate to be close to 6%. Generally the same amount of your pension and annuity income that is taxable for federal tax purposes is taxable by Wisconsin.  Social Security is not taxable.  Railroad Retirement benefits are not taxable.  Certain Wisconsin state and local government retirees qualify for a tax exemption. Out-of-state government pensions are fully taxed.  All retirement payments from the U.S. military employee retirement system, the Coast Guard, the commissioned corps of the National Oceanic and Atmospheric Administration and the Public Health Service are exempt.  Retired persons whose income is less than $10,000 ($19,000 if married filing a joint return) are also eligible for a "working families tax credit."  This credit reduces or completely eliminates the Wisconsin income tax for persons, including retirees, who are full-year residents of Wisconsin.  It is not necessary that you be employed, or that you have more than one person in your household, in order to claim this credit.