Retirement is supposed to be the reward at the end of decades of work, yet where you choose to spend those years can quietly chip away at your nest egg in ways many people never anticipate. While much attention goes to states with zero income tax, far less gets said about the states on the opposite end of the spectrum, the ones that tax Social Security, pensions, 401(k) withdrawals, and home values all at once.
These six states consistently show up at the top of tax burden rankings from sources like the Tax Foundation and U.S. News & World Report, and the reasons vary from state to state. Some hit retirees with steep income tax brackets, others tax Social Security outright, and a few pile on high property taxes or estate taxes for good measure. Here’s a closer look at where retirees are paying the most, and why.
1. California: The Steepest Income Tax Rates in the Country
California doesn’t tax Social Security benefits, which surprises many people given its reputation. Still, that’s about where the good news ends for retirees living there. California’s top marginal income tax rate hits 13.3%, the highest in the country. Pensions, 401(k) distributions, and IRA withdrawals are all taxed as ordinary income, meaning retirees with sizable savings can find themselves in some of the steepest brackets anywhere in the nation.
The math gets even more sobering when you compare it directly to a no-tax state. California has the nation’s highest income tax at 13.3%, fully taxing pensions and retirement accounts while exempting Social Security. One estimate puts the annual difference between retiring in California versus Florida at roughly $5,600 a year, which adds up to about $140,000 over 25 years of retirement. Add in California’s notoriously high cost of living, and it’s easy to see why so many retirees eventually look elsewhere.
2. New York: A Heavy Combination of Income and Property Taxes
New York doesn’t tax Social Security either, but it makes up for it in other ways. New York combines a 10.9% top income tax rate with estate taxes and an average effective property tax rate near 1.60%. For retirees living on pensions or retirement account withdrawals outside of Social Security, that top rate applies in full, and it’s one of the highest in the nation.
New York City residents face an even steeper climb. New York’s top rate reaches 10.9%, plus New York City adds up to another 3.876%, and the state taxes all retirement income except Social Security. Combine that with property taxes that are already elevated across much of the state and the overall cost of living in the metro area, and it becomes clear why New York regularly lands among the least tax-friendly places for anyone living on a fixed income.
3. New Jersey: Property Taxes That Overshadow Everything Else
New Jersey’s income tax structure is steep on its own, with rates climbing as high as 10.75% for top earners. Still, what really sets New Jersey apart is its property tax burden. New Jersey has the nation’s highest property taxes at a 2.21% average, income tax rates up to 10.75%, and an inheritance tax. For retirees who own their homes outright, that property tax bill lands every single year regardless of income.
The inheritance tax adds another layer that many retirees overlook until it’s too late to plan around it. Combined with one of the highest effective property tax rates of any state in the country, New Jersey creates a situation where even retirees who manage to minimize their income tax exposure still face a substantial annual cost simply for owning a home. It’s a pattern that has pushed a steady stream of longtime residents to consider relocating once they stop working.
4. Connecticut: Social Security Taxation Meets High Property Costs
Connecticut is one of a shrinking number of states that still taxes Social Security benefits, though the impact depends heavily on income level. Connecticut imposes an income tax of up to 6.99%, taxes Social Security for higher earners, carries high property taxes, and an estate tax. That combination of factors means retirees with moderate to higher incomes end up facing tax exposure on multiple fronts at once.
What makes Connecticut particularly tricky is how the rules shift based on income thresholds. Connecticut technically still taxes Social Security benefits, though many residents won’t pay these state taxes in retirement, since it depends on adjusted gross income and filing status. Retirees who fall just above the exemption thresholds can find themselves owing meaningfully more than neighbors with only slightly lower incomes, which makes tax planning in the state more complicated than in most others.
5. Minnesota: A High Top Rate Paired With Social Security Taxes
Minnesota consistently ranks among the toughest states for retirees, largely because it stacks several tax burdens on top of each other. Minnesota has a top rate of 9.85%, taxes Social Security, carries high property taxes, and has a $3 million estate tax threshold. That top marginal rate is among the highest in the nation, and it applies to pension income and retirement account withdrawals just as it does to wages.
Minnesota’s lower brackets don’t offer much relief either. The lowest income tax bracket is high in Minnesota compared to other states, and there’s also an estate tax that applies to estates valued over $3 million, though the state has no inheritance tax. For retirees who’ve built up a comfortable pension or a well-funded 401(k), Minnesota’s tax structure means a noticeably larger share goes to the state than in most of the country.
6. Vermont: Small State, Outsized Tax Burden
Vermont may be small in population, but its tax burden on retirees is anything but modest. Vermont has a high income tax of up to 8.75%, taxes Social Security for moderate earners, carries high property taxes, and imposes a state estate tax. That combination of factors consistently lands Vermont near the very top of lists ranking the least tax-friendly states for retirees.
The Green Mountain State’s overall tax burden extends well beyond income taxes alone. Vermont ranks among the states with the highest overall tax burden according to U.S. News, alongside Massachusetts, Minnesota, Washington, Maryland, Connecticut, California, New Jersey, and New York. For retirees drawn to Vermont’s scenery and small-town charm, it’s worth going in with clear eyes about what that lifestyle costs at tax time.
