The federal government has two retirement programs. One is the Civil Service Retirement System; the other is the Federal Employees Retirement System. If you are a retired federal employee, you likely receive an annuity from one of these programs for years of service. As a retiree, you would like to make your money last through your retirement years. One of the ways to accomplish this is to check state taxes before you relocate for retirement.
States With No Income Taxes
As of 2011, nine states have no income taxes. These states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Your federal retirement annuity is not subject to income taxes in these states. However, other taxes may surprise you. Sales taxes are often high in states with no income tax, but Alaska has no sales tax or income tax. Sales tax in Texas, for example, is 6.25 for the state, but local governments may add 2 percent.
States That Exempt Federal Annuity Payments
According to the Federal Retirement and Retirement Living websites, 10 states exempt federal annuities from state income taxes. These include Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania. Federal retirees have a choice of 19 states that do not subject federal annuity payments to state income taxes.
Ten Best Retirement States
The Kiplinger website suggests 10 best states for retirement, with tax consideration, and includes Alaska in the retirement states. Although the tax climate is excellent, the weather may not be. Michigan, Pennsylvania and Maryland are northeastern states on Kiplinger’s short list. If you prefer the west, Wyoming and Colorado are easy on retirees. South Carolina, Georgia and Alabama are southern states preferred in the Kiplinger study. Hawaii is in the top 10, as well.
Lowest Total Taxes
The Retirement Living website study ranks states lowest in total taxes. This includes federal, state and local taxation as a percent of income. Top-ranking states are Alaska, Arkansas, Delaware, Mississippi and Rhode Island. The states with the lowest state and local taxes as a percentage of income are Alaska, Hawaii, North Dakota, Vermont and Wyoming. A property tax study by the Tax Foundation in 2009 ranked property taxes on owner-occupied housing as a percentage of value in counties with over 65,000 residents. Several Louisiana parishes had the lowest taxes in the nation, with some Alabama counties in second place. In addition to the Louisiana parishes and Alabama counties, many counties ranked one percent or less on taxation, including White County, Arkansas and Oconee County, South Carolina.
IRS.gov: Publication 554 -- Tax Guide for Seniors
IRS.gov: Tax Guide to U.S. Civil Service Retirement Benefits 2009
Linda Richard - Writer, proofreader, editor, antiques appraiser specializing in pottery and glass. Author of Retirement Living Guide series.
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