Tim Robberts / Getty Images Some states exempt multiple forms of retirement income and eight states have no income tax at all. Key Takeaways Illinois, Iowa, Mississippi, and Pennsylvania are considered to be the most tax-friendly states for retirees. Forty-one states don't tax Social Security income. Thirty-seven states don’t tax most military retirement pay. Fifteen states exempt pension income from state taxes. Nine states have no income tax at all. After a lifetime of contributing to Socia ...