Best No-Tax States for Military and Federal Retirees in 2026 (State Tax Guide)

Best No-Tax States for Military and Federal Retirees in 2026 (State Tax Guide)

You did the hard part. You served. You worked. You earned your retirement.

Now comes the part that can quietly drain your paycheck every month: state taxes.

If you’re a military retiree, a FERS/CSRS retiree, or you’re getting a survivor benefit, the state you live in can mean the difference between keeping thousands of dollars a year… or handing it over in income tax.

This guide is built to help you pick tax friendly states for retirees—especially states that don’t tax federal pensions—with real examples, real numbers, and the “gotchas” people miss.

(Quick note: tax laws can change. Always double-check with your state revenue department or a tax pro before you move.)

The basics: what “no-tax” really means for retirees

When people say “no-tax states,” they usually mean no state income tax. That’s a big deal because:

• Military retired pay is usually taxed like normal income (unless a state gives a break).
• FERS/CSRS pensions are also taxed like income by many states.
• TSP withdrawals (Traditional) are typically taxable income.
• Social Security may or may not be taxed depending on the state.

But here’s the catch: even if a state has no income tax, it might hit you with:

• Higher property taxes
• Higher sales taxes
• Higher insurance costs
• Higher HOA or housing costs

So the “best” state is not just about income tax. It’s about your full budget.

For military benefit basics and retirement planning tools, start with VA.gov and Military OneSource. For federal retirement updates and plain-English coverage, FedWeek, GovExec, and Federal Times are solid.

What counts as “federal retirement income” (and what states tax)

Federal pensions: FERS and CSRS

If you’re a federal retiree, your monthly pension generally comes from:

• FERS annuity (most current retirees)
• CSRS annuity (older retirement system)

Many states treat these pensions like regular income. That’s why people search for states that don’t tax federal pensions.

TSP withdrawals (Traditional vs Roth)

• Traditional TSP withdrawals are usually taxable income.
• Roth TSP qualified withdrawals are usually not taxable.

States that don’t have an income tax won’t tax either one as income. States with income tax may still tax Traditional withdrawals.

Military retired pay and VA disability

• Military retired pay: some states exempt it fully, some partly, some not at all.
• VA disability compensation: generally not taxed at the federal level, and it’s typically not taxed by states either. If you’re unsure, confirm through VA.gov.

For military pay and retirement coverage, Military.com is also helpful for staying current.

The simplest answer: states with no state income tax in 2026

If your main goal is to avoid state income tax on your pension, TSP withdrawals, and military retired pay, these are the classic “no income tax” states:

Tax friendly states for retirees: the 9 states with no income tax

Alaska

• No state income tax.
• Can be expensive in some areas (heating, shipping, travel).
• Great fit for: people who already have roots there or want rural life.

Florida

• No state income tax.
• Big military and retiree community.
• Watch-outs: homeowners insurance can be pricey in some counties; housing can be expensive near the coast.

Nevada

• No state income tax.
• Often lower property taxes than some other places.
• Watch-outs: summer heat; local sales taxes can add up.

New Hampshire (special note)

• No tax on wage income.
• Historically taxed interest/dividends, but New Hampshire has been phasing that out and is widely treated as “no income tax” for most retirees.
• Watch-outs: property taxes can be high depending on town.

South Dakota

• No state income tax.
• Often lower cost of living.
• Watch-outs: winters; rural healthcare access in some areas.

Tennessee

• No state income tax on wages (and no broad income tax now).
• Popular with retirees.
• Watch-outs: sales taxes can be high.

Texas

• No state income tax.
• Great for many military families.
• Watch-outs: property taxes can be high; homeowners insurance can vary a lot by region.

Washington

• No state income tax.
• Watch-outs: higher housing costs in many areas; some special taxes exist (not a broad income tax, but still worth planning for).

Wyoming

• No state income tax.
• Often retiree-friendly.
• Watch-outs: winters; rural services.

If you want the cleanest “no state income tax” setup, these are your starting point.

Real dollar examples: what “no state income tax” can save you

Let’s use simple math with a “typical” state income tax rate. Many retirees land around 4% to 6% effective state tax, depending on deductions and brackets. We’ll use 5% to keep it easy.

Example 1: Federal retiree (FERS) + Social Security + TSP

• FERS pension: $42,000/year
• Traditional TSP withdrawals: $18,000/year
• Social Security: $24,000/year
• Total cash flow: $84,000/year

If a state taxes the pension and TSP (and maybe part of Social Security), your taxable state income might be around $60,000 (this varies a lot).

At 5% state tax:

• $60,000 × 0.05 = $3,000/year
  That’s $250/month.

In a no income tax state, that’s roughly $3,000/year you keep (again, property and sales taxes still matter).

Example 2: Military retiree + VA disability

• Military retired pay: $36,000/year
• VA disability: $24,000/year (not typically taxed)
• Part-time job: $15,000/year
• Total cash flow: $75,000/year

If your state taxes military retired pay and wages, taxable could be about $51,000.

At 5%:

• $51,000 × 0.05 = $2,550/year
  That’s about $212/month.

In a no income tax state, that money stays with you.

Example 3: Dual retiree household (military + federal)

• Military retired pay: $48,000/year
• FERS pension: $38,000/year
• TSP withdrawals: $20,000/year
• Total: $106,000/year

If a state taxes most of that, taxable might be $90,000.

At 5%:

• $90,000 × 0.05 = $4,500/year
  That’s $375/month.

That’s a car payment. Or a lot of groceries. Every month.

States that don’t tax federal pensions (even if they do tax other income)

Here’s where it gets interesting.

Some states do have an income tax, but they give special breaks for:

• Federal civil service pensions (FERS/CSRS)
• Military retired pay
• Or both

These can be great “middle ground” choices if you want:

• Four seasons
• Lower home prices
• Family nearby
• Better healthcare access

Because tax rules change, treat this as a planning list, not a final answer. Before you move, confirm your exact situation with the state’s official guidance and/or a tax professional.

Common retiree-friendly patterns you’ll see

• Full exemption for military retired pay
• Partial exemption for military retired pay
• Exclusion up to a dollar limit for retirement income (example: first $X is not taxed)
• Age-based exclusions (bigger breaks after age 62 or 65)
• Credits that reduce tax if your income is under a threshold

The key point: a state can still be one of the best tax friendly states for retirees even if it’s not a “no income tax” state—if it treats your pension well.

For ongoing reporting on changes to federal benefits and retirement, keep an eye on FedWeek, GovExec, and Federal Times.

Second angle: two retirees, same income, totally different best state

Let’s look at two households with the same “total money,” but different sources.

Scenario A: Mostly pension and TSP (federal retiree)

• FERS pension: $55,000
• TSP withdrawals: $25,000
• Total: $80,000

This person should focus on:

• states that don’t tax federal pensions
• and/or no income tax states

Why? Because most of their income is “retirement income,” and some states give special breaks for that.

Scenario B: Same total, but mostly part-time work

• FERS pension: $30,000
• Part-time wages: $50,000
• Total: $80,000

This person should focus on:

• no income tax states (because wages are usually taxed)
• or states with low overall rates

Even if a state exempts pensions, it may still tax wages fully. So the “best state” can change based on whether you plan to work after retirement.

Common mistakes retirees make when chasing “no-tax” states

Forgetting property taxes can be the real bill

Texas is the classic example. No state income tax, but in many counties, property taxes are high.

If you own a $400,000 home and your property tax is 2.0%, that’s:

• $400,000 × 0.02 = $8,000/year
  That can wipe out the income tax savings fast.

Looking only at the state, not the county and city

Sales tax and property tax can vary a lot by local area. Two towns in the same state can feel like two different tax worlds.

Assuming “military friendly” means “tax friendly”

A state can be great for veterans (good services, strong community) but still tax military retired pay more than you expect. Always check the tax rules.

For benefits and support programs beyond taxes (housing help, transition resources, family support), Military OneSource is a strong starting point.

Ignoring healthcare access and costs

If you’re a federal retiree, FEHB can travel with you—but your plan’s local network and costs can change by ZIP code. Military retirees may rely on TRICARE networks, which can also vary.

Moving too fast and triggering a “part-year resident” mess

In the year you move, you might owe taxes in two states. That’s normal, but it can surprise people. Plan the timing.

A simple how-to: pick the best tax friendly state for your retirement

Here’s a step-by-step way to do it without getting lost.

Start with your “retirement income mix”

Write down your expected annual amounts:

• FERS/CSRS pension
• Military retired pay
• TSP withdrawals (Traditional vs Roth)
• Social Security
• VA disability
• Part-time wages

Even rough numbers are fine.

Make a short list of 5–7 states

Use two buckets:

• No income tax states (the 9 listed above)
• States that don’t tax federal pensions (or give big exclusions)

Also add any states where family support matters. Being near grandkids can be worth more than a tax break.

Estimate your “taxable” income by state type

You don’t need perfect math at first. Use a quick estimate:

• No income tax state: state income tax likely $0
• Tax state with pension exemption: state tax might be low
• Tax state with no exemption: state tax might be moderate

Compare “big three” costs: housing, taxes, healthcare

For each state, look at:

• Home price or rent
• Property tax range (by county)
• Insurance (home + auto)
• Healthcare access (nearest major hospital, specialists)
• Travel costs (if you’ll fly to see family)

Do a one-page budget comparison

For each state, estimate:

• State income tax (rough)
• Property tax (rough)
• Sales tax impact (rough)
• Housing (monthly)
• Insurance (monthly)

Pick the best total, not just the best headline.

Confirm the rules before you commit

Tax rules change. Before moving:

• Check the state Department of Revenue site
• Talk to a tax pro who works with retirees
• If you’re coordinating VA benefits or records, start at VA.gov

For ongoing updates on federal retirement and policy changes that can affect your plan, follow FedWeek and GovExec.

Quick mini-checklist for federal and military retirees

If you’re a federal retiree (FERS/CSRS)

• Confirm how the state taxes your annuity
• Confirm how the state taxes TSP withdrawals
• Check if Social Security is taxed
• Review FEHB plan availability where you’re moving (ZIP code matters)

You can also explore more on FedInfo topics like benefits guide and federal pay info.

If you’re a military retiree

• Confirm how the state taxes military retired pay
• If you have VA disability, make sure your paperwork is clean and updated through VA.gov
• Check TRICARE network access and nearby military treatment facilities (if that matters in your area)
• Use transition and relocation planning tools through Military OneSource

Key Takeaways: best no-tax states for military and federal retirees in 2026

• The cleanest “no state income tax” choices are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
• Many retirees should also consider states that don’t tax federal pensions (or give big retirement income breaks), even if the state has an income tax.
• The “best” state depends on your income mix:
  • Mostly pension/TSP: prioritize pension-friendly rules
  • Still working: prioritize low/no tax on wages
• Don’t ignore property taxes, insurance, and healthcare access. They can erase the income tax savings fast.
• A simple budget comparison across 3–5 finalist states will usually beat guessing.