State taxes can significantly affect how much annuity income you keep in retirement. While annuities are designed to provide predictable monthly payments, the portion you take home can vary based on how your state taxes retirement income.

Some states do not tax retirement income at all, which may include annuity payments, pensions, and Social Security benefits. In these states, retirees often keep more of their guaranteed annuity income each month. Other states may tax annuity income partially or fully, depending on how the income is classified and your overall tax situation.

Because annuity income is often used to cover core living expenses, understanding state tax treatment can be an important part of retirement income planning.

States With No Tax on Retirement Income

These states generally do not tax retirement income, which may include annuity payments:

State	Retirement Income Tax
Florida	No state income tax
Texas	No state income tax
Nevada	No state income tax
Tennessee	No tax on retirement income
Wyoming	No state income tax
South Dakota	No state income tax

In these states, annuity income is often received without additional state-level taxation.

States That May Partially Tax Annuity Income

Some states tax retirement income selectively, offering exemptions or age-based deductions:

State	How Retirement Income Is Treated
Pennsylvania	Generally exempts retirement income
Illinois	Does not tax retirement income
Mississippi	Exempts qualified retirement income
Iowa	Phasing out retirement income taxes
New York	Partial exemptions based on income

Tax treatment may vary depending on your age, income level, and the type of annuity.

Why This Matters When Choosing an Annuity

Two retirees receiving the same monthly annuity payment may end up with very different after-tax amounts, simply because they live in different states. State tax rules can affect how annuity income is treated and how much of each payment you actually take home.

That’s why many retirees consider state taxes when deciding how much to allocate to an annuity, when to start income, and how annuity payments fit with Social Security or pension income. Understanding these differences can help avoid surprises and support more informed retirement income decisions.

Example: Two retirees each receive $1,500 per month from the same annuity. One lives in a state that does not tax retirement income, while the other lives in a state that taxes annuity payments. Over time, the retiree in the tax-free state keeps more of their monthly income, even though both annuities pay the same amount.

Compare Annuity Income With Taxes in Mind

When comparing annuities, it’s important to look beyond the headline payout and consider how taxes may affect your monthly income.

Seeing how annuity payments are taxed in your state can help you better estimate what your retirement income may look like after taxes.