When you retire or reach a certain age, there might be certain things you no longer have to do. You might get to skip the commute or qualify for some great discounts. But no matter your age, you don’t get to opt out of taxes. It’s important to understand why seniors are still taxed, the common taxes seniors pay and how to minimize your tax bill. If you want individualized help preparing for retirement or creating a tax strategy, you can bring on a financial advisor.

Taxes aren’t determined by age, so you will never age out of paying taxes. Basically, if you’re 65 or older, you have to file a return for tax year 2023 (which is due in 2024) if your gross income is $15,700 or higher. If you’re married filing jointly and both 65 or older, that amount is $30,700. If you’re married filing jointly and only one of you is 65 or older, that amount is $29,200.

That said, there is one situation in which you can kiss taxes goodbye. If your only income is Social Security payments, you won’t owe taxes and you probably won’t need to file a tax return.

Common Taxes Seniors Pay

If you’re 65 or older, you might also be retired or partially retired and taking distributions from your retirement savings. Retirement savings and investments can have more complex tax rules than income, where you often get taxes deducted automatically from each paycheck and a W-2 at the end of each year. Here are some of the more common taxes retirees face and how they work.

Social Security Taxes

If you have significant retirement income other than Social Security, you might have to pay income tax on your Social Security benefits. The percentage of your Social Security benefits that are taxable depends on your combined income. Combined income is defined as your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.

If you file taxes separately and your combined income is $25,000-$34,000, you may owe income taxes on 50% of your Social Security benefits. If your combined income is higher than $34,000, up to 85% of your benefits may be taxed.

If you file a joint return and you and your partner’s combined income is $32,000-$44,000, you may owe income taxes on 50% of your Social Security benefits. If that number is more than $44,000, 85% of your benefits may be taxed.

Common Retirement Accounts

IRAs, 401(k) plans and other popular retirement savings vehicles have different tax treatments. Generally speaking, some are pre-taxed and some are taxed at withdrawal. For example, IRAs that are funded by money that was already taxed—say you take $1,000 from a paycheck and put it in a Roth IRA—won’t be taxed when you withdraw that money in retirement as long as you meet IRS requirements. 

Read Also: At What Rate is Unemployment Taxed?

On the other hand, 401(k) plans are usually funded with pre-tax money, so you’ll usually owe income tax on withdrawals in the year that you take them.

Pension Taxes

Like 401(k) plans, pensions are usually funded by pre-tax money, so you’ll owe federal income taxes on withdrawals in the year you take them. If you take a lump-sum payment rather than annual or periodic payments, you will owe the total tax bill in the year you receive that payment.

In many cases, your employer through which you have the pension will withhold taxes as your pension payments are disbursed, which can help mitigate the tax bill.

While seniors don’t get to dodge taxes altogether, there are several ways for you to save on your taxes once you reach a certain age. Here are a few.

• Take advantage of the tax credit for the elderly: The Credit for the Elderly and Disabled is worth between $3,750 and $7,500. You can use the IRS’s tool to see if you qualify and how large a credit you might get. Generally speaking, you have to be 65 or older and make less than $17,500 in adjusted gross income if you’re filing singly or as head of household—that limit rises to $20,000 if you’re married filing jointly and only one spouse is 65 or older and $25,000 if you’re married filing jointly and both 65 or older.
• Use your bigger standard deduction: If you’re 65 or older and you don’t itemize deductions, you are entitled to a higher standard deduction. A single filer over 65 gets an extra $1,850 deduction, a couple filing jointly gets an extra $1,500 for each partner who is 65 or older. So if only one spouse is 65 or older, the extra deduction amount is $1,500, but if both are 65 or older, it’s $3,000.
• People 50 or older can make “catch-up” contributions to their retirement accounts: The 2024 contribution limit for a traditional or Roth IRA is $7,000, up from $6,500 in 2023, but if you’re 50 or older you get an extra $1,000. The 2024 contribution limit for a 401(k) plan is $23,000, up from $22,500 in 2023 and those 50 and older get an extra $7,500, which remains the same in 2023. Contributing to a tax-deferred retirement account reduces the amount of income tax you owe—and sets you up for a more secure retirement.
• You’re not alone: If navigating tax credits or understanding changing catch-up limits feels overwhelming, you don’t have to go it alone. Take advantage of free IRS tax assistance for those 60 and older or free AARP tax assistance for those 50 and older who have a low or moderate income.

Unless you have no income outside of Social Security payments, you’ll probably have to keep filing taxes. The good news is that there are tax credits and other strategies you can use to help you keep that tax bill low. You may want to work with a financial advisor in order to make sure you have a clear tax strategy during retirement. 

What are the Best States to Retire Tax Wise?

For retirees looking to stretch their savings, relocating to a place with low taxes and an enjoyable quality of life is often worthwhile. We spoke with financial experts and reviewed data from the Tax Foundation and Tax-Rate.org to compile a list of states with favorable tax rates, access to beautiful scenery and top-rated health care facilities.

Consider these tax-friendly states as you look for a place to retire. States are listed in alphabetical order:

• Alaska.
• Florida.
• Nevada.
• South Dakota.
• Tennessee.
• Texas.
• Washington.
• Wyoming.

Alaska

If you love the outdoors, America’s northernmost state and the largest by area could make a good home. Alaska collects no state income tax or sales tax, though you may pay some local taxes, which have an average rate of 1.82%. The state does collect revenue from property taxes, however, which are among the highest of all states.

The median property tax in Alaska is $2,422 per year for a home worth the median value of $232,900. Alaska residents also receive a unique financial perk. After living in the state for a year, you’ll be eligible to receive an annual payout from an oil wealth trust fund. That payout was $1,312 in 2023. Retirees have access to health care in the state’s top hospitals located in Anchorage and Fairbanks.

Florida

You may be aware of Florida’s picturesque beaches and sunny winter weather. But a temperate climate isn’t the only advantage of retirement in Florida. “With no state income tax, including no tax on Social Security or retirement income, Florida is a prime choice,” said Tammy Trenta, founder and CEO of Family Financial in Los Angeles, in an email. “Spending the majority of the year here while visiting family elsewhere can offer a balanced, cost-effective retirement lifestyle.”

You’ll find quality health care throughout the state in cities such as Miami, Tampa and Orlando. The 2023 median property tax in Florida is $1,773 per year for a home worth the median value of $182,400. The combined state and average local sales tax rate is 7%.

Nevada

“Known for no income tax on Social Security or retirement income, Nevada also presents a lower overall cost of living,” Trenta said. Retirees can take advantage of its entertainment, warm climate and the surrounding natural scenery.

Property taxes may also seem in line with your budget. The median property tax in Nevada is $1,749 per year for a home worth the median value of $207,600. You’ll find a combined state and average local sales tax rate of 8.24%. “Las Vegas and Reno offer the best medical facilities in the state, with specialties in various fields,” Trenta said. “However, rural areas may have limited access to health care services.”

South Dakota

South Dakota is another state that doesn’t collect income tax. Retirees don’t need to pay a state tax on Social Security benefits, pension payments, retirement account withdrawals or income earned from a part-time job. There are property and sales taxes to consider, but they may be low compared to other states.

“South Dakota goes easy on sales and property taxes while offering a varied climate to appease most,” said Shawn Plummer, a retirement tax planning specialist and CEO of the Annuity Expert in Atlanta, in an email. If you love rural life and wide open spaces, South Dakota could be a good option. The median property tax is $1,620 per year for a home worth the median value of $126,200. South Dakota’s combined state and average local sales tax rate is 6.11%. Retirees will find that Sioux Falls has some of the highest-ranking hospitals in the state.

Tennessee

The state of Tennessee doesn’t tax Social Security, pension income or job earnings. Dividends and interest are also not taxed in the state. “These tax benefits are a major draw for retirees looking to maximize their retirement income and reduce their overall tax burden,” said Guillermo F. Jarquin, founder and chief accountant at Cloud Accounting Professionals in Miami, in an email.

Property taxes are also low. The median property tax in Tennessee is $933 per year for a home worth the median value of $137,300. You’ll need to account for the combined state and average local sales tax rate of 9.55%. Nashville, Memphis and Chattanooga all have high-ranking hospitals for medical treatment. If you enjoy music, mountain living and living in the Southeast, Tennessee could be for you.

Texas

Texas has no state income tax, meaning retirees don’t have to worry about paying state taxes on Social Security income, pension payments, or 401(k) and IRA distributions. “While it has diverse climate and cultural experiences, be mindful of potentially higher property taxes,” Trenta said.

The median property tax in Texas is $2,275 per year for a home worth the median value of $125,800. The combined state and average local sales tax rate is 8.2%. You’ll find access to excellent medical care in many of its major cities, including Houston, Dallas and San Antonio.

Washington

“Though it has a higher cost of living, Washington doesn’t tax Social Security or retirement income,” Trenta said. “Its outdoor activities are a draw for many.” While you won’t have to pay state income tax on account distributions, pensions or earnings from a retirement job, your property will be taxed.

The median property tax in Washington is $2,631 per year for a home worth the median value of $287,200. You can expect to pay a combined state and average local sales tax rate of 9.38%. “Washington is known for its high-quality health care system, with excellent medical facilities located in Seattle and other major cities,” Trenta said.

Wyoming

Wyoming doesn’t levy an income tax, so there’s no state tax bill for any type of retirement or earned income. Retirees won’t incur a large tax burden when making purchases either because the combined state and average local sales tax rate is 5.44%.

You also won’t pay high property taxes to own a home. “Pair budget-friendly no income taxes and low property taxes with Wyoming’s natural splendor for an idyllic, tax-efficient retirement,” Plummer said. The median property tax in Wyoming is $1,058 per year for a home worth the median value of $184,000. Retirees may prefer living near state medical hubs such as Rock Springs, Gilette, or Cheyenne.

Where do the Happiest Retirees Live?

Finland may have claimed the title of happiest country in the world for a record seventh year, but if you’re over 60, you may want to seek happiness elsewhere. 

Denmark has the highest level of life satisfaction among seniors and retirees, according to the World Happiness Report, which, for the first time ever, ranked countries by age group. The Nordic state scored second in the overall ranking and fifth for the happiness of its young people. 

“Global happiness inequality has increased by more than 20 percent over the past dozen years, in all regions and age groups, to an extent that differs a lot by age and by region,” the report noted. It stated that Baby Boomers, or those born before 1965 tend to be happier than millennials and Generation Z, or those born after 1980, even if the COVID-19 pandemic affected that generation the most.

Life expectancy in Denmark has steadily increased since the 1950s and is expected to reach 87 for women and 85 for men over the next 30 years, much faster than the rest of the world. Currently, the average retirement age in Denmark is 65, but it will change to 68 in 2030. Denmark spends 8.1 percent of its GDP to fund its universal pension system, which consists of a basic pension and supplements. However, some pensioners may also be eligible for “a supplementary pension benefit, a personal allowance, a health allowance, and a heating supplement,” according to an analysis by the Organisation for Economic Co-operation and Development. In addition, seniors in Denmark are entitled to deep discounts on fares for public transportation and cultural institutions.

And according to a survey by the Nordic Welfare Center that gathered data between 2003 and 2020, 61 percent of Danes between the ages of 65 and 74, reported high overall satisfaction with their health. 

“As people age, the prevailing negativity bias of younger ages is on average across the world increasingly offset as age leads people to focus more on positive news and memories, to accumulate enriching life experiences, to think better of others, and to rate their lives more highly,” the World Happiness Report found. It also recorded a slight decline in reported happiness levels as age increases.

Finland is second on the list of happiest countries for seniors, and Norway is third. Afghanistan, Lebanon, and Lesotho are at the bottom of the ranking.