What Is a State Premium Tax?

State premium taxes are sales taxes assessed on insurance premiums. Because annuities are insurance products, they are regulated by the insurance commissions in each state. Much of that regulation is relatively uniform, but there are subtle differences. The most significant difference is the tax states levy on insurance premiums.

Anthony Termini, Financial Expert
  • Written By
    Anthony Termini

    Anthony Termini

    Expert Contributor

    Anthony Termini is a financial writer, investment analyst and stock market commentator. He has held Series 3, Series 7, Series 8, Series 63 and Series 65 licenses. A subject matter expert in multiple asset classes, Anthony has a comprehensive understanding of portfolio construction, asset allocation, diversification, portfolio management, retirement planning, investment taxes, size-and-style allocation, efficient frontier and total-return strategy — among other topics.

    Read More
  • Edited By
    Kim Borwick
    Kim Borwick, Financial Editor for Annuity.org

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for Annuity.org.

    Read More
  • Financially Reviewed By
    Rubina K. Hossain, CFP®
    Rubina K. Hossain

    Rubina K. Hossain, CFP®

    Certified Financial Planner™ Professional

    Certified Financial Planner Rubina K. Hossain is chair of the CFP Board's Council of Examinations and past president of the Financial Planning Association. She specializes in preparing and presenting sound holistic financial plans to ensure her clients achieve their goals.

    Read More
  • Updated: September 13, 2022
  • This page features 6 Cited Research Articles
Fact Checked
Fact Checked

Annuity.org partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Cite Us
How to Cite Annuity.org's Article

APA Termini, A. (2022, September 13). What Is a State Premium Tax? Annuity.org. Retrieved September 23, 2022, from https://www.annuity.org/annuities/buy/state-premium-tax/

MLA Termini, Anthony. "What Is a State Premium Tax?" Annuity.org, 13 Sep 2022, https://www.annuity.org/annuities/buy/state-premium-tax/.

Chicago Termini, Anthony. "What Is a State Premium Tax?" Annuity.org. Last modified September 13, 2022. https://www.annuity.org/annuities/buy/state-premium-tax/.

Why Trust Annuity.org
Why You Can Trust Annuity.org
Annuity.org has provided reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities and financial literacy topics using plain, straightforward language.

Our Partnerships, Vision and Goals

We pride ourselves on partnering with professionals like those from Senior Market Sales (SMS) — a market leader with over 30 years of experience in the insurance industry — who offer personalized retirement solutions for consumers across the country. Our relationships with partners including SMS and Insuractive, the company’s consumer-facing branch, allow us to facilitate the sale of annuities and other retirement-oriented financial products to consumers who are looking to purchase safe and reliable solutions to fill gaps in their retirement income. We are compensated when we produce legitimate inquiries, and that compensation helps make Annuity.org an even stronger resource for our audience. We may also, at times, sell lead data to partners in our network in order to best connect consumers to the information they request. Readers are in no way obligated to use our partners’ services to access the free resources on Annuity.org.

Annuity.org carefully selects partners who share a common goal of educating consumers and helping them select the most appropriate product for their unique financial and lifestyle goals. Our network of advisors will never recommend products that are not right for the consumer, nor will Annuity.org. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.

Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.

State premium taxes can be high, so if you’re considering buying an annuity, be aware of how the premium tax might affect the value of your annuity.

How States Tax Insurance Companies

With the exception of Illinois and Michigan, the states generally don’t tax insurance companies the same way they tax other businesses. The states tax other businesses on their corporate income. Insurance companies are taxed on the value of the premiums they write in a state.

It is important to understand that each state is free to tax every aspect of an insurance company’s premiums. That includes premiums they receive from the sale of annuities. The reason you need to be careful is that those taxes are almost always passed on to you when you buy an annuity.

Icon of phone and Joe L.
Speak to One of Our Reps Like Joe L.
Our qualified financial professionals can help you find the right solution to help fill your income needs in retirement.

When Are Premium Taxes Due?

You will pay state premium taxes at one of two points in time.

If you buy an immediate annuity, you will pay the premium tax up front. The tax won’t be added to your out-of-pocket premium payment. Instead, it will be deducted from the initial value of the annuity contract.

When someone buys a deferred annuity, the premium tax is collected during the annuitization, or payout, phase. The premium tax will be deducted from the first payment.

Which States Charge a Premium Tax?

Nearly all U.S. states and territories charge insurance companies a premium tax. But not all of them levy the tax on annuities. There are only a handful of states that charge a premium tax on annuities.

StateAnnuity Premium TaxNotes
California2.35%Tax of 0.5% annuity premiums on qualified pension and profit-sharing plans.
Florida1%No tax annuity premiums paid by holders in the state if the tax savings are credited to the annuity holders.
Maine2%No tax on certain historical annuities, retirement annuities issued by certain nonprofit companies, or annuities issued in connection with deferred compensation plans or certain retirement accounts qualified or exempt under federal law.
Nevada3.50%No tax on annuities issued in connection with the funding of a pension, annuity or profit -sharing plan qualified or exempt pursuant to federal law.
Puerto Rico3%
South Dakota1.25%1.25% for first $500,000. 0.08% for everything above $500,000.
Wyoming1%No tax annuities issued in connection with pension annuity or profit-sharing plan exempt or qualified under federal law.

Importantly, many of the states that do charge a premium tax on annuities waive it when they are purchased inside a qualified plan, such as an IRA, 401(k) or other type of employer-sponsored retirement plan.

What Kind of Planning Can Be Done to Avoid a Premium Tax?

For many people considering an annuity, avoiding the premium tax is simple. Most states don’t charge it on annuities. For consumers living in one of the seven states that charge the tax, there are a couple of planning considerations available.

Those already preparing to move to a state that doesn’t charge the tax should hold off buying an annuity until after the move is completed.

Those who have a residence in two different states — where one is a high-tax state and the other is a low- or no-tax state — should seek the advice of their financial and legal advisors to determine if purchasing an annuity when living in the home in the low-tax state is possible.

Interested in Buying an Annuity?
Learn about the different types of annuities and find out which one is right for you.

Taxation is not the only aspect of annuities that the states regulate. Rates, features and benefits can all vary widely based on the rules and individual tax codes of each state.

The individual states determine which features of a product they will approve for sale. Some states regulate how and to whom an annuity may be sold. Others regulate the types of riders available for purchase.

States may also treat the various types of annuities differently. All annuities are insurance products, but some annuities are also regarded by states as securities.

Under federal law variable annuities are categorized as securities, regulated by the U.S. Securities and Exchange Commission. Fixed annuities, on the other hand, are not securities and are not regulated by the SEC. And although most indexed annuities are not registered with the SEC, an indexed annuity may or may not be a security.

Regardless of the state in which your annuity is issued, it makes sense to consult with a financial advisor to determine which type of annuity is appropriate for you.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: September 13, 2022

6 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. American Council of Life Insurers. (n.d.). Annuities and Consumer Protections. Retrieved from https://www.acli.com/Consumer-Info/Annuities/Annuities-and-Consumer-Protections
  2. American Council on Gift Annuities. (2020, November 8). State Regulations. Retrieved from https://www.acga-web.org/state-regulations
  3. Insurance Information Institute. (2021). State taxes. Retrieved from https://www.iii.org/publications/a-firm-foundation-how-insurance-supports-the-economy/a-50-state-commitment/state-taxes
  4. Grace M. et al. (2007). Insurance Premium Taxes. Retrieved from https://www.ntanet.org/wp-content/uploads/proceedings/2007/006-grace-insurance-premium-taxes-2007-nta-proceedings.pdf
  5. Todd, M.B. & Cook, P.E. (2017, December). Retaliation: A Guide to State Retaliatory Taxes, Fees, Deposits and Other Requirements. Retrieved from https://www.naic.org/documents/prod_serv_legal_ret_zu.pdf
  6. U.S. Securities and Exchange Commission. (n.d.). Annuities. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/glossary/annuities