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4 States Changing Retirement Tax Rules in 2026 (Is Yours One?)

A handful of states are reshaping income, estate, and retirement-related taxes in 2026, and the details can change what you keep in retirement.

By Adam Palasciano

Edited by Laura Hohenstein

Updated Dec. 30, 2025

If you're planning for retirement, 2026 is a good year to double-check your state's tax rules. State tax rules can change how much of your Social Security and other retirement income is taxed, which will impact how much money ends up in your pocket.

Here are the most notable changes (and proposals) to put on your radar now.

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New York is adjusting estate planning math in 2026

New York's estate tax rules can matter for higher-net-worth retirees who plan to leave assets to family. For 2026, the state's basic exclusion amount is going up to $7.35 million (up from $7.16 million in 2025), which can change whether an estate owes New York estate tax, and how much.

Even if your estate is below the federal threshold, state estate taxes can still be a real planning issue. If you're anywhere close to retirement, it may be worth reviewing beneficiary designations, trusts, and gifting plans with an estate attorney.

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West Virginia is fully exempting Social Security benefits by 2026

West Virginia is finishing a multi-year phaseout of state taxes on Social Security income, with full exemption taking effect for the 2026 tax year. When retirees file their 2025 returns in 2026, two-thirds of their benefits will already be exempt, and by 2027, 100% of Social Security benefits will be excluded from state income taxes. This represents a meaningful change for retirees who previously saw a portion of their monthly checks taxed at the state level.

Notably, the deduction applies regardless of income, meaning higher-income retirees also qualify without phaseouts or caps. As a result, West Virginia is increasingly positioning itself as a more retirement-friendly state from a tax perspective.

Mississippi is dropping its flat tax to 4% in 2026

Mississippi exempts a wide range of retirement income from state taxes, including Social Security benefits, public and private pensions, military retirement pay, and distributions from retirement accounts like 401(k)s, 403(b)s, and IRAs — including both traditional and Roth accounts. This broad exemption means many retirees owe little to no state income tax on their primary sources of retirement income.

Other types of income are still subject to Mississippi's flat income tax, which currently applies to amounts over $10,000. However, that rate is scheduled to drop in 2026, declining from 4.4% to 4%, which could provide retirees on a fixed income with greater cash flow.

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Kentucky to cut income tax in 2026

Kentucky lawmakers approved a plan to lower the state's individual income tax rate from 4% to 3.5% beginning in 2026, a move projected to keep more than $700 million in residents' pockets. This move should lower taxes on retirement income, investment earnings, and part-time wages for many filers and is part of a plan to eliminate state income taxes altogether.

This change makes Kentucky a state to watch closely as you plan for and begin retirement.

How federal changes can also impact your retirement income

Even when your state doesn't pass a headline-grabbing tax law, federal tax law updates can still affect your income. For retirees, that can mean changes in how much of your retirement income is taxable, whether deductions are large enough to itemize, and how credits phase out.

If you use a CPA or tax software, it's important to run a projection early — not just in April — so you can adjust withholding and withdrawal timing before it's too late.

Here are two federal tax rule changes for 2026.

SALT tax cap adjustments

For tax years 2025 through 2029, the federal cap on the state and local tax (SALT) deduction is temporarily increased, creating a meaningful opportunity for taxpayers in high-tax states. Under the updated rules, households with modified adjusted gross income below $500,000 ($250,000 for those married filing separately) can deduct up to $40,000 in eligible state and local taxes instead of the long-standing $10,000 limit.

For higher-income households, the cap phases down by 30% as income rises, eventually returning to $10,000, with both the cap and income threshold increasing by 1% annually. For retirees facing high property taxes or state income taxes, this expanded deduction could significantly reduce federal taxable income during the phase-in window.

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The standard deduction is going up

The IRS is also raising the standard deduction for 2026, which can lower taxable income for millions of filers — especially seniors who no longer itemize. Married couples filing jointly will see the standard deduction increase to $32,200, while single filers and married individuals filing separately will be eligible for $16,100. Heads of household will qualify for a higher deduction of $24,150.

Because many retirees rely on fixed income and may not have enough deductions to itemize, a larger standard deduction could directly translate into a smaller tax bill without additional planning.

Bottom line

State tax changes can be easy to miss because they're scattered across budgets, agency guidance, and legislative sessions. If you want a stress-free retirement, the best move is to confirm whether your state has a 2026 change (or a serious proposal), and then run a quick projection that matches your withdrawals, Social Security timing, and housing costs.

States may update rules quietly through administrative guidance after a law passes. Checking an official state tax agency page (not just headlines) can help you avoid wasting money as you build your 2026 tax checklist.

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