It pays to know how a state taxes retirement income, and whether the state offers any tax breaks to retirees. By Rachel L. Sheedy, Editor October 1, 2012 EDITOR'S NOTE: This article was originally published in the October 2012 issue of Kiplinger's Retirement Report. To subscribe, click here.No matter where you live, Uncle Sam will take his cut of your retirement income. But your state could take a chunk as well -- the size depending on your location. If you're thinking of moving, check how the states on your list will tax retirement income, such as Social Security and pensions, and whether the states offer any tax breaks to retirees. SEE ALSO: Special Report on Maximizing Social Security Benefits To help you out, we have updated our popular Retiree Tax Map. The map provides tax information for the 50 states and the District of Columbia. You can sort the map by categories, such as by the states that don't tax Social Security or by the states that have the highest income-tax rates. You can also check out Kiplinger's picks for the ten most tax-friendly states and the ten least tax-friendly states for retirees. Advertisement In reviewing a state's tax breaks, look at the types of income that make up your retirement income stream. Retirees who will rely on a pension might fare better tax-wise in a state that exempts pension income, while such a break will not matter much to those who will rely on income from dividends and interest. Those who will rely on Social Security may want to consider a state that exempts those benefits. Also, states can differ on the types of retirement income they exempt. Some states exempt only public and private pensions, while other states offer broader breaks, such as exemptions for IRA and 401(k) distributions. Keep in mind that states that offer tax breaks in one area may raise revenue by imposing higher taxes on other activities. A state that has no income tax could impose a high sales tax, for instance. Also look at the impact of local taxes. Most counties and cities determine property-tax rates, and many also tack on their own sales taxes. Advertisement Retirees should consider the impact of estate and inheritance taxes. Twenty-two states have either an estate tax or an inheritance tax, or both. An estate tax is imposed on the deceased's estate as a whole. An inheritance tax is imposed on each beneficiary. Exclusions from state estate taxes can vary from the federal estate tax (there is no federal inheritance tax), so retirees who are moving should review their estate plans. Remember, though, state taxes should just be one factor in choosing a retirement destination. Find links to state tax-department Web sites at the Federation of Tax Administrators. Pensions and Retirement Accounts Nine states rise to the top when it comes to being tax-friendly for income. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no income tax. Tennessee and New Hampshire only tax dividends and interest. Advertisement Among the 41 states with an income tax, 35 states offer a tax break for at least some retirement income. State and local government pensions are fully exempt in Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Mississippi, New York and Pennsylvania (note, some of these states do tax out-of-state government pensions). Twelve other states, plus D.C., offer a partial exclusion for public pensions. In Michigan, taxpayers born before 1946 can fully exclude state and local government pensions, but that exclusion is gradually eliminated for Michiganders born in later years. Some states treat public pensions differently from private pensions. Illinois, Mississippi and Pennsylvania exclude all private retirement income, while Kansas and Massachusetts tax all private retirement income. Alabama excludes private pensions, but it imposes taxes on distributions from defined-contribution plans, such as 401(k)s, and IRAs. New York offers an exclusion of up to $20,000 of private pension income. Hawaii doesn't tax money from retirement plans funded by an employer, but it does partially tax money coming from retirement plans to which employees contribute. Retirement-income exclusions vary in size and often include age or income restrictions. For instance, New Jersey offers an exclusion of up to $15,000 of retirement income for single filers age 62 or older whose gross income for the year does not exceed $100,000. In Georgia, the retirement-income exclusion for those ages 62 to 64 is $35,000, but it is $65,000 for those 65 and older. Montana offers a pension and annuity income exemption of up to $3,760 per individual, subject to income limitations. Six states, though, provide no safe haven for retirement income: California, Minnesota, Nebraska, North Dakota, Rhode Island and Vermont. Connecticut offers a 50% exclusion for military pensions but no other retirement-income tax breaks. Advertisement Social Security Benefits States treat Social Security benefits more generously than they treat other retirement income. The federal government can tax up to 85% of Social Security benefits, but most states don't tax benefits at all. Besides the nine states that don't have a broad-based income tax, 27 states and the District of Columbia exclude Social Security benefits from state income taxes. They are Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin. The remaining 14 states tax Social Security benefits to some extent. Minnesota, Nebraska, North Dakota, Rhode Island, Vermont and West Virginia tax benefits like Uncle Sam does -- that is, up to 85% of benefits can be included in taxable income on the state tax return. Connecticut, Iowa, Kansas, Missouri and Montana tax benefits above certain income limits. In Colorado, Social Security is not exempt, but benefits can qualify for the state's retirement-income exclusion, which is worth up to $24,000. In New Mexico, Social Security benefits may qualify for the state's $8,000 exclusion. In Utah, benefits may qualify for a retirement-income tax credit of up to $450. Retirement-income tax breaks are subject to change -- but some changes can be friendlier than others. For instance, Iowa is phasing out its tax on Social Security by 2014. On the flip side, while Michigan fully exempts Social Security now, starting in 2020, some taxpayers born after 1952 will be taxed on Social Security benefits. Haven't yet filed for Social Security? Create a personalized strategy to maximize your lifetime income from Social Security. Order Kiplinger's Social Security Solutions today.