🌵 COUNTRY A Arizona VS 🌴 COUNTRY B Florida

No. Social Security benefits are fully exempt from Arizona state income tax. This applies regardless of your total income level. If your retirement income consists primarily of Social Security, the difference between Arizona and Florida is minimal on state taxes — both are effectively zero on that income. The 2.5% Arizona rate applies to pension income, 401(k) and IRA withdrawals, and other taxable retirement distributions.

Arizona's 2.5% flat rate (introduced in 2023) makes it one of the most competitive states for retirees in the western US. For comparison: California taxes retirement income up to 13.3%, Oregon up to 9.9%, Colorado at 4.4%, and Nevada/Texas/Florida at 0%. Arizona sits in a middle ground — significantly better than the high-tax western states, but Florida, Nevada, and Texas still win on income tax alone.

In Arizona: Social Security is fully exempt; military pensions are fully exempt; government pensions may have a small deduction. All other retirement income (private pensions, 401(k), IRA withdrawals, RMDs) is taxed at 2.5%. In Florida: everything is exempt — there is no state income tax of any kind. Pensions, Social Security, 401(k), IRA, RMDs, annuities, and investment income all face zero Florida state tax.

Neither Arizona nor Florida imposes a state estate tax or inheritance tax. Both states follow the federal estate tax exemption ($13.61 million per person in 2024). This makes both states highly favorable for wealth transfer compared to states like Massachusetts or Oregon that have estate taxes starting at $1–2 million. For high-net-worth retirees concerned about estate planning, both states are equal on this point.

Arizona's average effective property tax rate is approximately 0.6%, one of the lowest in the US. The state offers a Senior Property Valuation Protection (freeze program) for homeowners 65+ with income under $43,872. Florida's average effective rate is about 0.86%, but Florida offers a Homestead Exemption of up to $50,000 on primary residences, reducing taxable value. Both states are reasonable on property taxes, but Arizona edges out Florida on effective rates.

Florida wins purely on state income tax (0% vs 2.5%). However, Arizona is competitive on overall retirement costs: lower property insurance (no hurricanes), slightly lower property tax rates, and more affordable inland living. Retirees prioritizing tax minimisation choose Florida. Retirees who want lower housing/insurance costs, drier climate, and more outdoor activities may prefer Arizona — the 2.5% tax difference amounts to $2,500/year on $100K of non-SS income, which may be offset by $3,000–$5,000 in annual insurance savings.